Buying Short Sales and Foreclosures

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The primary difference between short sales and foreclosures is in who is selling the property. With a short sale, the bank allows the homeowner to sell the home for less than what he owes on it meaning he is selling it short. A foreclosure is when the bank seizes the property from the owner and attempts to sell it to recover what is owed.

But when a bank is unable to sell the property during a foreclosure auction it becomes an REO or a real estate-owned property. Prices for REO’s can be better than a short sale but there’s also a catch that comes with it.

When it comes to short sales many buyers gravitate towards them for two reasons, one because the list price is attractive and two because they think the seller is desperate. Neither of which may be true. In many cases, sellers set unrealistic listing prices, and also not all of them are desperate to sell.

Buyers need to understand that buying a short sale or Foreclosure is not for everyone, it doesn’t automatically mean you get a deal. short sales may take months and months of banks approving and accepting all required documentation. Imagine being in contract for 6 months only for the bank to deny the short sale. If time is of the essence then a short sale may not be for you. Even though you can get a loan for short sales and standard contracts are used Most short sales fail because either the bank does not approve it or because there is a lien on the property. If there is any type of lien on the property not only does the bank need to approve the short sale but so does every single lien holder. It only takes one of them to deny it and the sale falls through. These bank and lien approvals are basically like a contingency.

Side Note: when buying a short sale it needs to be an arms-length transaction meaning the buyer cannot be related to the seller.

Now when it comes to buying REOs the deal typically happens really fast, banks are not in the business of property management so the quicker they can close the better. But there’s a catch. REO properties favor cash buyers, so if you are looking for foreclosure you better be ready to have quite some cash sitting in the bank to pay in full. Not only that but banks are not required to give you any type of disclosure on the property, in most cases, you even waive the right for disclosures. So if you think you’re getting a deal because you purchased a property for $500k that last year was valued at $600k only to find out it needs $150k worth of repairs then you should think again.

If you are looking to purchase a short sale or foreclosure however make sure to work with an agent that understands the process and paperwork needed to actually execute the deal, an agent who knows the language and can take you to the finish line.

DISCLAIMER: This video either has links to my own products or affiliate products so any purchases you make from the links clicked in this video I will earn a commission with it.

DISCLAIMER: This video either has links to my own products or affiliate products so any purchases you make from the links clicked in this video I will earn a commission with it.