Home Buying in Portland>Question Details

Jillian, Home Buyer in Portland, OR

Short Sale vs. Foreclosure

Asked by Jillian, Portland, OR Wed Sep 3, 2008

2 questions:
What is the difference?
Why to realtors dissuade first time home buyer from purchasing a short sale?

I fell in love with one and being discouraged to pursue. In defense of my realtor; I am very much looking to purchase a home before the end of year...

Help the community by answering this question:


Hi Jillian - Scott gave you some very good info regarding the differences between Short Sale & Foreclosures - a couple more factors I would like to add is that most owners doing a short sale are in foreclosure and may even have an auction sale date set so are trying to sell to avoid a foreclosure. In both a short sale and foreclosure - the bank will have the final say regarding the acceptance of an offer. What makes the short sale a little more difficult is that the home owner/seller can accept the offer you've written - but the bank can then choose to negotiate or even reject it and there are some banks that will take up to 30 days just to respond to you so it can be a lengthy and discouraging process which is possibly why your Realtor has discouraged you from the home you fell in love with.

The good news is, if you are't in a hurry - they can actually be worth the wait. I currently have a transaction pending where I am representing a first time home buyer and we are purchasing a Short Sale home. The home owner owes his bank around $204,000 - the bank told us that the minimum offer they would take was $165,000......we wrote it for $165,000 but asked them to pay our $8,000 in closing costs so their net is actually $8,000 less than the minimum they said they would take and we are getting a screaming deal!

When you are looking at either a bank owned our short sale home - the more homework you do and the more documentation you can provide to support your offer will help the bank in making their decision. In my scenario - I completed a formal Broker Price Opinion (mini appraisal that banks use) for the property and sent it along with our offer to substantiate our price and area market. I also belong to a website where I can check to see if a home is up for auction - banks would much rather work out a deal prior to auction than to have to foreclose as it's much cheaper for them, so if you can access that info - it will help as well. Any info you can find ahead of time gives you leverage when writing an offer.

As for purchasing a home before the end of the year.......now is a great time, especially if you are looking at short sale and bank owned homes because banks usually want these off their books before the end of the year so will respond a little quicker and negotiate a little more. And as for values in our market - there are always going to be homes of any type that are overpriced and that's not unique to bank owned/short sale homes. You just have to watch and be familiar with your market and trust your Realtor to help guide you through this process of finding the right home at the right price.

Best of luck to you in finding your first home!

Kelly Gebler
Real Estate Broker, Residential & Commercial Financing Specialist
Commonwealth Group & DeMark Financial Services
415 17th Street, Suites 5-7
Oregon City, OR 97045
PH: 503-516-1637
2 votes Thank Flag Link Thu Sep 4, 2008
Short Sales are a rapidly changing process with each bank. Each bank has it's own policies and some are more helpful than others. I used to think 9 out of 10 didn't sell but have since learned better.

If you try to purchase a Short Sale home you need to make sure at least one of the agents are familiar with the process or are using someone who is, otherwise it can easily fall apart.

The banks will not call the agent to ask for missing paperwork. A fax can take days to make it from the machine to the loss mitigator. If someone is not on top of the deals, waiting for the bank will almost insure failure and hence many agents think they aren't worth the trouble.
2 votes Thank Flag Link Wed Sep 24, 2008

The site below will answer most of your questions on short sales, foreclosures, bank owned homes, etc. Short sales can take months to close....and some stats say that only 35% of short sales are actually completed. If you have the luxury of time....and patience!....a short sale may work for you.
1 vote Thank Flag Link Thu Sep 4, 2008
The Hagley G…, Real Estate Pro in Pleasanton, CA
J: one of my Brokers found a suitable property that was labeled as a short sale for his buyer. They made an offer two months ago and, even though, the listing Realtor insists the bank is in the consideration phase, at this date they have had absolutely no response from the bank. The buyer finally gave up and made an offer on another property!! I couldn't blame her at all. There is no protocol for lender response and/or common courtesy. It can be very frustrating for all involved. Obviously, not impossible but if you have a goal of home ownership with any defined timelines, it may be improbable.
Janeese Jackson, Principal Broker
Real Estate Resource
1 vote Thank Flag Link Thu Sep 4, 2008
I think it sad that your realtor would discourage you without an explanation of why, so you wouldn't have to ask the question on Trulia. You should not hestiate to ask your agent this question. It appears you don't have confidence in your agent or that your agent isn't doing a good job in fully representing you by avoiding giving these types of explanations. Or perhaps you didn't believe your agent and decided to get confirmation. Either way, you've received some good info here. Short sales are not 'short' in price in all cases and surely not short in time to close. They are short because the homeowner came up short in paying their mortgage payments and the bank is short-on-patience if you don't pay your bills :)

One other thing I might add to what's been said is this. Even if you get an approval signature from the homeowner-they don't have final say in a short sale; the bank (3rd party) makes that decision-you won't hear from the bank in many cases until you find out they totally ignored your offer and allowed the house to go to someone else or to the auction. The don't play by standard real estate protocol. They are not obligated to put their rejection in writing, and they don't have to abide by the contractural time limits-although if they don't respond to your liking you're free to pull your offer. You also may not know that others may put offers in... even if you got an acceptance from the homeowner...and are also waiting to hear from the bank. The listing agent of a short sale is supposed to show all offers to the bank, and can get approval on more than one from the homeowner and must present them all to the bank, who then will be the one to approve one or none. With several offers it could still go to auction if the bank didn't like the offers.

At the auction, often the bank bids on the home themself to get it back and will then relist it as a REO rather than take a low-ball offer. This scenerio happened to one of my buyer clients; what a long process that ended in them looking elsewhere after all those months of waiting. We then learned the home was back on the market, as a REO at the price we offered. If a property comes to be relisted as a REO you would have to start over with your offer. A buyer who is short on time, as you are, should look at the existing market of financable homes and avoid the short sale listings. If you have nothing but time (and patience) then it may be worth your while if you don't mind rejection, disappointment and being frustrated by delays.

A good deal can be had in this market for those not in a hurry, and with an investment mindset...(willing to wait out the steal-of-a-deals). Personally, I've chosen to refer all short sales to a company who does only that- The experts who dedicated all their time to them and hire employees to make the calls (hours on the phone required for these).

Best to you.
Web Reference: http://www.junelizotte.com
1 vote Thank Flag Link Thu Sep 4, 2008
Hi Jillian,

Great questions. I am sure many buyers are asking themselves the same thing.

Short Sale is when the seller is not able to sell for the property for the amount of the lien(s) on the property and has to a.) bring money to the table, or b.) needs the bank to help them figure out a solution so they can sell the property. Short Sales are not bank owned property.

Foreclosed home has gone through the process of removing the title from the previous owner(s) and the investor has taken title by force. Most cases this is a bank such as Wellfargo, Chase, Bank of America ect....
The bank sells the property without warranty or disclosure. These are not always "deals" as one thinks. It's very situational.

I would never discourage anyone from making an offer on a property that they like, but would never encourage a client to look at properties just because it was listed as a "short sale" or foreclosure. In most cases you will find that even when in a "short sale", it is still priced out of market. There are plenty of resales available in the market with people who are able to sell for market value because they actually have built equity in their property the old fashioned way....time and payments.

Remember, its your hard earned money. You have permission to do with it what you choose. Your Realtor is a person you have hired to give you objectionable and personal perspective on your choices/decision. I would recommend listening to them and then deciding what is best for you.

Best of luck,

Brian Ramsay
Principal Broker
Condos, Lofts and Townhomes
Pearl, Downtown and South Waterfront
1 vote Thank Flag Link Wed Sep 3, 2008
main reason is 9 out of 10 short sales do not close. the bank is in no hurry to take a loss. short sales take 3 to 6 months to go through, most are doomed from the start wasting peoples time, money and emotions. if you go through with it make sure the seller is already finacially approved for a short sale, 90% are not, then ask if they have completed the bpo and appraisal. this will save you 4 months alone. good luck with the purchase as you will need patince and a realtor who has the experience to make it work, most do not. it takes daily calls, 1 to 2 hours a day every day , more time than most people want or have to put into it. good luck
Web Reference: http://www.ScottSellsNH.com
1 vote Thank Flag Link Wed Sep 3, 2008
Choose a short sale specialist. Most of the best homes are selling prior to foreclosure
0 votes Thank Flag Link Mon May 16, 2011
If handle properly 9 out 10 short sales will close. If you are going to purchase a short sale you need to make sure you are comfortable with the time it takes to close - typically on average 90 days. Make sure you purchase a short sale from a competent REALTOR who has a proven track record of success. They should be surrounded by a team of professionals who know what and how to work short sales. If a short sale is handle properly, the sellers is a good candidate, and you have a strong negotiator on your side the deal will close as long as your offer is reasonable. On an average home that doesn't need a lot of work your price should be anywhere between 85%-95% of the current market value. Don't low ball the bank - it won't work - but you'll still be purchasing a nicely discounted property.
Web Reference: http://www.1800sellnow.com
0 votes Thank Flag Link Fri Sep 5, 2008
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