Foreclosures And Short Sales Are They For You

Dated: 02/04/2015

Views: 874

Foreclosures And Short Sales Are They For You?

In today's real estate world, short sales and foreclosures are the hottest topic for home buyers. Every potential shopper is looking for a "deal" and most start their bargain hunting by looking at foreclosures and short sales hoping to land a deal, but do you really want to deal with them?

Foreclosures may also be called REO's or Bank Owned properties, they all fall under the same umbrella, they were homes that were owned by a person, but defaulted and were reposessed by the lending institution. Now usually you'll see the listing price of a property, and it'll be listed at 50-70% price of the area, which will look good at first, but after closer inspection, aren't much of a deal at all. Usually when a house is listed as a foreclosure, its been sitting empty for 3 or more years. Foreclosure usually need extensive work to be brought up to livable condition. If the foreclosure can't meet FHA standards, you will have to put up to 20% down on them, as opposed to 3% most home buyers are accustomed to. The biggest issue with these foreclosed homes is that, in addition to being ugly, they need numerous repairs before someone can move in, and a bank won't pay for these repairs, so the cost to bring it up to standard is coming directly from your pocket. Most first-time home buyers choose to pass on foreclosures and decide to look at something a little more turn-key. Foreclosures are usually reserved for investor buyers who have the capital to buy the house, and finance the repairs.

Short sales are a different monster all-together, these are homes that an owner is "under water" on their mortgage, meaning they owe more than they can sell it for. When these homes go for sale, the owners ask the bank to accept a lesser amount in hopes of avoiding foreclosure. This type of transaction can be very difficult to close because the owner has to prove a hardship and justify the price reduction. The whole process can take up to 6 months to complete, which adds another layer of difficulty. If it takes 6-9 months to get approval from the bank, the property value could drop, or mortgage rates increase which would mean a buyer can afford less house. If the market shifts while you are under contract and you decide to withdraw, you could lose your deposit, and while you are waiting for approval tons of better homes will be selling and closing while you are still waiting. The other draw back is that most people don't have the flexibility to wait 3, 6 or 9 months to move, there are school and jobs to worry about and leases to consider. In this way, Short Sales are best avoided for the first time homebuyer.

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