Home Buying in Dublin>Question Details

Rsk, Home Buyer in Dublin, CA

Foreclosure & short-sale homes

Asked by Rsk, Dublin, CA Tue Jan 4, 2011

What are the pros/cons/issues of buying foreclosure homes or short-sale homes?

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Answers

6
Pros of buying a short sale home:

• You may actually get a better price than a normal sale
• Banks may often provide credits for closing costs
• Properties are often in better condition than REOs because they still have the sellers living in them
• Short sales listing agents are often easier to communicate with than REO listing agents

Cons:

• The processing time can be EXTREMELY long – we’ve had short sales go as long as 20 months (Wachovia is the best – we’ve had approval within 3 weeks)
• The initial list price will frequently be artificially low – and the seller may sign your offer at a very low price leading you to think you might be getting a deal, but when you get the final bank approval, the bank usually comes back with a much higher price more in keeping with real market values
• The bank WILL NOT pay for a home warranty
• The bank will frequently NOT pay for the transfer taxes
• The bank may come back and tell you that, in addition to paying for the home, you need to “contribute” a sizeable chunk of cash for any reason which could include (i) paying off the second loan, (ii) paying delinquent HOA fees or taxes, or (iii) anything else they are not willing to pay for.
• Many short sales listing agents hire professional short sale mitigators who charge a fee for processing the short sale – you may be asked to pay some or all of this – up to a full percentage of the purchase price
• You will have to buy the property “AS-IS” – banks WILL NOT repair things no matter how bad your inspection reports might be
• The seller will provide full disclosures, but there is really no recourse if the disclosures are wrong in any way
• If the seller decides to trash the property on the way out the door, or remove key elements of the house (range, hot water heater), you really have no real recourse
• There may be LONG periods of silence with no information of any kind – if you are in a hurry to get a home and move in, short sales are NOT for you
• Short sales make us (the Realtors) scream, shout and pull out big chunks of hair …
• The chances of a short succeeding are low – approximately 35%.
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2 votes Thank Flag Link Tue Jan 4, 2011
Good information from folks here. I'd add a couple of thoughts on the short-sale side, should you choose this path:
1) Make sure the listing agent has experience. An agent with S-S experience will make life a lot easier for all parties;
2) Understand their may be up to four parties making decisions - the seller, current "lender," the investor (ie Fannie/Freddie) and the mortgage insurer. Knowing each of these has a say in the outcome will prepare you for surprises.

Good luck!
1 vote Thank Flag Link Mon Jan 10, 2011
The simplest way to look at buying these types of properties would be;

Pros-

Price- normally FC and SS properties are priced lower than ‘regular’ resale. The bank is looking at what would be the least amount they are going to lose on the deal, and work those figures into their decision whether or not to accept an offer.

Inventory- there are TONS of FC and mostly SS properties that are listened under these classifications, thus- a lot to choose from. Times are tough all around for sellers and homeowners who bought 5-10 years ago, and a lot of them are trying to unload their current homes.

Financing- plenty of REO (Real Estate Owned) properties that are owned by FennieMae or Freddie Mac have great programs for first time buyers or Owner Occupied buyers, that include relatively cheap properties and favorable financing with low down payments and great rates.

Cons-

Condition- some properties that have been on the market and vacant for a long time are in poor condition due to neglect or vandalism. Just imagine a house sitting vacant for months going through the various seasons without having someone tend to them. Also, do expect banks to repair any issues that may be brought to the surface in an inspection report, as most of those are sold As-Is.

Transaction time frame- SS properties require the seller and the bank to play ball since both need to accept the offer for it to go through. Though the owner acceptance stage of it can go smoothly, the bank needs to accept taking the loss, then send out for an appraisal, get all of that back to their underwriting which means your offer could be sitting in a pile at the bank for literally months before you get a response, and even then, the answer could be rejection of your offer.

Financing- the condition of the property could be so bad that obtaining financing may not be an option, or would require the buyer to come up with a substantial down payment. Some SS and FC condos in some of the larger building could prevent you from getting any loan if there are too many of those in the building, designating the building as ‘financially unstable’, which will prevent any bank from providing a loan all together.

Legally- not all sellers of these properties would be willing to provide the necessary disclosure or even have difficulty providing a clean title.



To put it as clearly as possible; greater risk- (potentially) greater reward.
Web Reference: http://www.dreamtown.com
1 vote Thank Flag Link Mon Jan 10, 2011
Pros of buying a foreclosed home:

• You may actually get a better price than a normal sale
• Banks are highly motivated sellers
• Banks will often provide credits for closing costs
• Bank escrows can be very smooth and quick, if your agent knows what they are doing
• You have a better chance of getting a fixer, which allows you the opportunity to put more of your ‘personality’ into the home as you fix it up
• If you buy a HomePath REO, there will NOT be an appraisal – very good news if the property is distressed and wouldn’t qualify for an FHA loan

Cons:

• Some REO listing agents have proven, over the past three years, to be a very difficult and uncommunicative group to work with
• You may end up in a multiple offer situation and have to operate “blind” – banks are only interested in highest and best offers in these situations
• You will have to buy the property “AS-IS” – some banks (ie. Wachovia) actually fix the properties up a bit to enhance resale, but don’t count on it – and they WILL NOT repair things no matter how bad your inspection reports might be
• The bank will not provide any disclosures of any kind that will tell you anything worthwhile
• The banks will insist you sign their Addendum which will strip you of all hard-won buyer rights included in a normal purchase agreement
• You may have to be pre-approved by the bank’s loan personnel
• A percentage of REOs do not qualify for FHA loans due to property condition

Here are some inks that will help you understand the REO process a bit more:

Top 10 Things I HATE About REOs: AND 3 Startling Consequences
http://bit.ly/1PWj4V

How To Buy An REO – Top 17 Questions Answered
http://bit.ly/YGweG

Lookin’ For an REO? 8 Things to Expect When You Open the Front Door.
http://bit.ly/59uxEF

Wanna Buy An REO? You MUST Watch This ...
http://bit.ly/7M5It7
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1 vote Thank Flag Link Tue Jan 4, 2011
Kudos to Carl --- he covered so much ground~

You may also want to read these articles

Buying a short sale: http://homebuying.about.com/od/buyingahome/bb/BuyingShortSale.htm

Buying an REO http://homebuying.about.com/od/foreclosures/Buying_Foreclosu…

Lots of good information here!

Good luck!
0 votes Thank Flag Link Tue Jan 4, 2011
Rsk
You may find the some of the answers to your question here:

The 4 Foreclosure Related Real Estate Opportunities
http://www.trulia.com/blog/lyle_wolf/2010/11/the_4_foreclosu…

What Every Buyer Should Know Aboout Short Sales
http://www.trulia.com/blog/lyle_wolf/2010/08/what_every_buye…
0 votes Thank Flag Link Tue Jan 4, 2011
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