which is a better purchase, a forclosure or a short sale?

Asked by Kerron Anderson, Brooklyn, NY Fri Jun 24, 2011

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Sally Grenier, Agent, Boulder, CO
Fri Jun 24, 2011
Depends on what your criteria is. There is no cut and dry answer. And...why don't you thow in a regular sale into the mix? Everyone thinks that buying a foreclosure or a short sale is a great deal. But guess what? It's not necessarily the case. Most banks want "fair market value". Same with short sales. And these distressed properties often come with a host of issues.

Coincidentally, I just wrote a blog post about this exact issue. It's a very general overview of the pro's (but mostly con's) of buying foreclosures and short sales:


If you are serious about buying, you need to first find a REALTOR to work for you as a Buyer's Agent. He/she will be able to sit down with you, discuss your wants/needs, your budget, etc. send you listings, take you to look at properties, research what fair market value is, etc.
Web Reference:  http://www.sallygrenier.com
1 vote
Anthony, , Staten Island, NY
Sun Jun 26, 2011
Short Sales are long drawn out processes. What the banks dont realize is that a homeowner who is losing their home/investment is not so eager to fill out the short sale package and help facilitate the deal. An REO is owned by a bank and usually the banks are willing to dump this house and get it off their books. Banks dont want to maintain, insure, and worry about a property. They want to cut their losses and go back to the well," The Government for more cheap money and re-loan that cash out to a new borrower. REO properties are the way to go. Short sales are shear torture.
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Layth Abbasi, Agent, edgewater, NJ
Sun Jun 26, 2011
Neither one is always better than the other. REO properties are more straight forward, the bank owns the property and wants it sold fast, you know what your paying and an acceptance is immediate... short sales sometimes take months to close, but can be very rewarding if you actually get an acceptance. If your working with the right agent, you could end up buying a regular sale that is neither bank owned or short sale and get an REO type deal on it, you need to know the market regardless, and dont always assume its a great deal simply because its an REO.
0 votes
Michelle Hol…, , Chattanooga, TN
Sun Jun 26, 2011
I think a short sale is better!
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Lyle Wolf, Agent, Morristown, NJ
Sun Jun 26, 2011
You might find this article helpful:
The 4 Foreclosure Related Real Estate Opportunities
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Anna Campbell, , Pleasanton, CA
Sun Jun 26, 2011
The main difference between a REO (foreclosure) and a shortsale is that with a REO you are negotiating with a lender. With a shortsale you are negotiating with a seller and then a lender.

Shortsales are great opportunities when there is only one loan on the property and the lender has an efficient way of handling shortsales.

REO's can be a great opportunity if the lender understands the true value of their property and if they are ready to let go of the inventory.

In both cases, you or your Realtor need to do their research. Find out how many loans, who the lender(s) is, what the history of the property is, how much repair needs to be done to make it a marketable property, and what is the local tax base.

Once you do find a good property, then you can also think about using one of the 203K programs.

Here are 6 tips when purchasing a shortsale

Here is information to consider when purchasing a REO property

Thank you,
Anna Campbell

AnnasHouses.com Helps You Move Forward

Prudential California Realty, DRE# 01874431
REALTOR®, GRI, CDPE, Short Sale & Foreclosure Resource (SFR)
(925) 399-1629
0 votes
Jeanne Feeni…, Agent, Basking Ridge, NJ
Sun Jun 26, 2011
A property that has been foreclosed upon will likely be simpler and take less time.

Jeanne Feenick
Unwavering Commitment to Service
Web Reference:  http://www.feenick.com
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Shanna Rogers, Agent, Murrieta, CA
Sun Jun 26, 2011
Hi Kerron,

Neither is 'better' per se....they each have pros and cons. Of course, the best to buy is a Standard Sale.

Foreclosure/REO: Can get a good price. Typically closes faster than a Short Sale. Typically sold 'As Is' and the bank typically will NOT do ANY repairs. Usually the property has been vacant for a while and the bank does not know of 'issues' with the property since they've never lived there. The bank is exempt from many seller disclosures because they have never occupied the property.

Short Sale: Can also get a good price (if the lender(s)/investor(s) approve). Can take anywhere from under 24 hours to 6 months for approval of the short sale (yes, I've had approval in under 24 hours...) and then once approved by the lender(s)/investor(s) you need to add time for closing (typically 30-45 days after date of approval). Must be patient with short sales but if your Realtor stays 'on top' of the Listing Agent, it can be done. If you find a short sale you really like, don't give up - it can be worth it. Most short sales are also sold 'As Is' - the seller usually can't afford to do any repairs (hence, the short sale) and the bank 'typically' won't do any repairs either (but they are more likely to do them on a short sale than on a REO - ask, all they can do is say 'no'). The seller has to do all seller disclosures (unlike with REOs) because they have lived in the property. This is a 'plus' for short sales over REOs. Also, if the seller is still living in the property, the property may be being taken better care of than a vacant REO.

Whichever you decide to purchase, make sure your Realtor does a Comparative Market Analysis (CMA) on the property BEFORE submitting your offer - using Sold comps within 1 mile radius of the property (the closer, the better) that have sold within the last 3 months. This will give you market value (which is what the lender(s)/investor(s)/bank will be looking for - not necessarily the list price). You want to base your offer on market value so you have a better chance of having your offer accepted instead of other buyer's offers.

Good luck.

Shanna Rogers
SR Realty
0 votes
Jeffrey Cotn…, Agent, Canal Winchester, OH
Sun Jun 26, 2011
The answer to this question depends on many other things. One being, how big of a rush are you in. Foreclosures for the most part can and will close within 30-45 days. Short sales can take 90 days up to a year to close.
The last deal i had, we were $300 away from a deal. The bank wouldn't come off $300, after 10 months, the buyer walked. All over $300. So shorts sales have a much different process than a forclosure.
You can get good deals on both, but the forclosure would be a better bet.
Forclosure means the bank has played all the games and are now ready to sell the house. It is very important to look very close at these homes. Most have set empty for months with no utilities/have been vandalized/had water in the basement and many other things. Just because it is bank owned doesn't always mean it a good deal.
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Don Tepper, Agent, Burke, VA
Sun Jun 26, 2011

And it depends on what you mean by "better." I assume you mean "cheaper."

To oversimplify: Who's going to sell it cheaper: The bank or the bank? Yup, that's right. In both cases, the bank determines the price. In the case of a foreclosure, the bank actually owns the property. In the case of a short sale, the owner is the purchaser from a few years ago. However, the sale is contingent upon the bank's approval of the price.

And in both cases, the bank largely uses its determination of the value of the property. That determination comes from what's called a "BPO" or broker's price opinion. It's like a quickie appraisal, but generally a lot less accurate. The one major difference is that foreclosures and short sales are handled by two different departments within the bank. So you'll frequently see a variation in how the actual transaction is handled. And generally--though not always--foreclosures are comparatively easier than short sales.

But if you mean: What's the better value? There's no "a foreclosure is better than a short sale" rule of thumb, or visa versa.

And to complicate things further, sometimes a conventional sale is best. It certainly will take less time than a short sale, and often less time than a foreclosure. The home might be in better condition--people who lose their homes via foreclosure, especially, are tempted to trash the home. And if it's in an area with some foreclosures or short sales, the owner knows that, to compete against foreclosures and short sales, he/she will have to be price-competitive with them.

Hope that helps.
0 votes
Carol Perdew, Agent, Manteca, CA
Sun Jun 26, 2011
The best advice for homeowners is to look at the entire inventory of homes for sale. Most of buyers will consider traditional sales and bank-owned homes to be able to close escrow in a shorter amount of time. There are opportunities with short sale homes because there is typically less competition. The drawback to short sale listings is that it may take much longer to close escrow. In addition, short sales also require the approval of all of the lenders on the sellers's property. Even though there are more steps in the process of closing a short sale, I have buyers that have been able to buy a quality home at a good value.

Carol Perdew
(209) 239-7979
DRE 985176
0 votes
Gerard Carney, Agent, Spring Hill, FL
Sun Jun 26, 2011
Ah another educated consumer I see! Not, lose the phase words and you will better be able to buy the best home your dollar can buy! There are resales in the same areas you are looking to buy in that are priced better and are better deals than Foreclosures and Short Sales. Do not narrow your mind with bank induced perceptions that their inventory is the best buy on the market! Yes it is true that our MLS is full of Short Sales and Foreclosures, but there are regular people out there also selling, getting a house off them before it ruins their credit. Their are smart people that will take a lose on a home in order to save their credit credibility. These smart sellers are selling at rock bottom to get quick sales, they are willing to work with buyers to be sure that they are satisfied with the home condition, banks are not. Foreclosure and Short Sales are sold in AS IS sales, so you have no idea what the condition is, when you do find out, that is the condition the bank is selling it in, so like it or lump it for the price. Private resales will bend backwards to make the house more desirable for the sale and will not sell as is, you will see appliances included in the home Bank properties may have lost these items when the old defaulted owner took anything of value with them at time of eviction. The condition of the home will be better in private resale, Bank homes will have signs of abuse due to disgruntle eviction victims having put holes in the wall or language on the walls. You need to not narrow your search. Best not to ask a Realtor to show you Foreclosures and Short Sales, but to explain them to you, ask about conditions you will see, ask about resales in the area as well. Best is just ask the best deals on the MLS and let them show you everything!
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Fajardo Dela…, Agent, Flushing, NY
Sat Jun 25, 2011
I wrote a blog that might help here is the link. I hope it answers most of your questions. If you need any further help, please just call or e- mail me any time. Thank you.
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Richard Schu…, Agent, Los Angeles, CA
Fri Jun 24, 2011
It depends on what you are looking for. If you are looking to buy something quickly and have a specific time frame in mind, you may be better of with a foreclosure. A short sale can take take months or over a year (or longer) to be approved, and may never be approved.

You can read a little more about buying foreclosures here: http://richardschulman.com/foreclosures/
And short sales: http://richardschulman.com/buyers/short-sales/

Good luck,

Richard Schulman
Keller Williams Realty
0 votes
Cindy Rosen, Agent, Montgomery, AL
Fri Jun 24, 2011
Usually foreclosures will be a better price however you will probably run against investors with cash and pros that are accustomed to buying these properties. Foreclosures many times can be in very bad shape when people leave thier homes many times they take what they can from the property also when the property is abandoned vandals will move in.
Short sales are another breed all together. You can get a very good price however the risks outweighs the bargains many times. Banks stall for month's and you as the buyer may think you have a deal but banks are not realtors and live by a whole other set of rules. You can have an accepted offer but if a cash deal comes in or a much more attractive offer they can nix yours and move to the other. You must have a realtor that remains a KIND PEST!
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Anna M Brocco, Agent, Williston Park, NY
Fri Jun 24, 2011
Depends, which property do you like better....keep in mind that not all short sales or bank owned properties are such great bargains; what is your agent advising....
0 votes
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