Buyers are so attracted to homes that are in distress, in
hopes of achieving a great price. When deciding between foreclosures and short
sales, home buyers have a lot to consider. Here’s how they rank up in my
experience for location, condition, time, price and stress. Consider these
points to assist you in decision-making:
sales have location advantage. When a seller lives in a desirable
community, and he or she can no longer afford the mortgage, a short sale is
possible. It is tough to find a foreclosed home in an area with excellent school
test scores, for example. So short sale has the location advantage.
sales typically have the condition advantage. A foreclosure may be empty,
or may have experienced a year or more of neglect. A short sale will typically
still be occupied, and thus, in general, will have the condition advantage.
Condition advantage goes to the non-distressed home, first, though, because a
short sale seller is not technically allowed to make any improvements once the home goes on
the market. A lender will not allow repairs in the closing costs. Whereas a home that
is not a short sale or a foreclosure gives the buyer an opportunity to ask for
repairs before closing the deal. Another advantage with the short sale is that frequently you will have access to the history of the home from the current owner. You won't have historical information on a foreclosures, in general.
have the time advantage. If you need to own a home, and you want to live in
it or rent it out within the next 90 days, offer on a foreclosure. You can typically close
within 60 days and frequently within 25 or 35 days. The close date will be much more
under control than in a short sale scenario.
Price: Foreclosures have a distinct price advantage.
The price a bank will sell a foreclosed home for is driven by the most recent similar
closes or market value of a home. A short sale price is driven by most of the same documentation. However, if a
home hangs out on the market for a long time, the listing agent on a
foreclosure can make an argument to reduce price or sweeten the offer with
repairs, closing cost credits, or incentives. Listing agents may get repairs done. National price documentation shows foreclosures to be significantly less expensive than short sale homes. Having said that, occasionally, a
home can be approved for a very low short sale price. And you can look hard but rarely find a foreclosure in many of our South Bay communities. If there are no foreclosures in a given area,
then short sales win on price (over a normal sale).
for less stress goes to the foreclosed home. A short sale is a long
stressful experience that statistically can go in either direction (approved or
declined) and the buyer may or may not have a say in that direction. For
instance, one of my short sales, the owners, a couple that was divorcing, got
back together. No more short sale, they financially now qualified and couldn’t
get a short sale approval. In another scenario, the lender for the buyer
required tenting (sec. 1 termite repairs) prior to close, and the seller’s bank
didn’t want to allow that. The buyer’s bank ended up relenting, but this help
up the short sale by 2 weeks, and was highly stressful for all parties.
When choosing between foreclosed homes or a short sale home,
take stock of what matters most to you.
Erica's note: Concepts from the BankRate article published June 28, 2011 contributed to the research for this blog: http://www.bankrate.com/finance/real-estate/which-to-buy-short-sale-or-foreclosure-1.aspx
Contact Erica Nelson for assistance with your short sale listing, purchase or foreclosed home purchase at EricaNelsonEstates@gmail.com or 408-416-7090.