Many home buyers want to get a great real estate deal in this extreme buyer’s market by buying smart. After all, the motto “buy low and sell high” stands true especially in these down economic times. Buyers can be confused as to the difference between a home foreclosure aka bank owned and a short sale. Plus these terms are frequently used incorrectly.
Listed below are the definitions, and the comparisons for buyers to make an informed decision on which to purchase.
A foreclosure is a property that has been taken back or repossessed by the first priority lien holder. It is now bank owned. This entity is usually a major bank, loan company, or mortgage company. Any liens or debts attached to the property have usually been paid by the bank, loan company, or foreclosing institution through the legal process.
A short sale means selling a home for less than the loan balance owed on it, meaning the seller bought the home originally for let’s say $200,000, it has a current loan balance of $150,000, and the market price has now crashed to $100,000. The home will have to be sold $50,000 “short” of its original loan balance with bank or loan company approval.
Foreclosure vs. Short Sale
Transaction time: foreclosure - 30-60 days. Short sale is 60 days to one year.
Price: foreclosure - rock bottom. Short sale - low, but statistically not as low as foreclosures.
Liens/attached debts: foreclosure - usually already satisfied through the legal process. Short sale - possible debts that new buyer might have to assume, but the current owners are required to disclose fully if they know about any.
Negotiations to purchase: forelosure - bank or loan company. Short sales - the current owners of the property and their bank, loan company, or mortgage company.
Condition of home: foreclosure - typically poor. Short sale: typically good to fair.
Ease of inspections: foreclosure - tough, as the utilities are not usually on and the banks aren’t excited about paying to turn them on. Short sale - fairly easy, as the owners are usually still in the home with utilities on.
Buyer requested repairs: foreclosures - only material defects. Short sales - possible if current owners are willing to pay for them.
Occupancy: foreclosures - usually vacant. Short sales - usually occupied
Headache factor (scale of 1-10). Foreclosure - 5-6. Short sale - definitely a 10.
Hopefully this gives buyers a quick picture of what to expect and from this they can make purchase decision, armed with information and knowledge.
Good luck!
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