INTERESTED IN A DEAL?
Foreclosures and Short Sales offer great opportunities to invest in real estate and these are some explanations of two terms you should be familiar with:
These properties have gone through the legal of process of being taken back by the lender and are currently owned by them. There are legal fees and other expenses involved in foreclosures and the time to finalize all of this adds to the expense the bank has incurred to get the property back; all while no payments were being made by the previous owner. Once the property is legally in the bank's name, they will get several Broker Price Opinions (BPO's) to determine what the market value of the property is. After these BPO's are made, the lender will hire an appraiser to also determine what the market value is. Based on all of this input, the bank will determine a price and list it with a real estate agent. While the bank is anxious to get the property off of their books, they will most likely not accept low-ball offers. A reasonable offer will be looked upon favorably and most importantly, the bank will respond within hours or days, not weeks or months like a Short Sale.
Lenders have not actually lived in or in most cases been inside the property. For this reason, they will not offer a Seller's Property Disclosure. Be sure to get an inspection and ask for a home warranty which will give you peace of mind for one year from purchase.
The longer a Foreclosed property is on the market, the more negotiable a lender will become. This is not to say they won't deal early on, but the reality of having held a property for a long time will eventually give way to a lowered price. Typically, Foreclosures offer a good deal and should definitely be considered if it is in your price range and location you are considering.
Summary: Good deals are available and response form the bank is usually quick. Be sure to have it inspected, ask for the seller to provide a home warranty and if the property has been on the market a while, an even better deal could be had.
This is a property where the lender has agreed to take less than what is owed to them, so that the seller can get out of the mortgage. It is very important to determine, up front, if the lender has approved the property for a Short Sale. Some properties are marketed as "pre-Short Sale" which means it has not been approved by the lender. Chasing after these properties can waste a lot of time and be even more frustrating than a true Short Sale.
In order for a lender to agree to a Short Sale, the mortgaged property must generally be the person's primary residence. The reason for this is that if the person has equity in other real estate, the lender is not going to take less than they are owed when other avenues exist for that homeowner. The lender is looking for a situation where a homeowner truly has no other opportunity to sell in the current market and owes more than it is worth. If it weren't for the Short Sale, the homeowner would be facing Foreclosure. In many cases it is less expensive for the lender to agree to a Short Sale rather than go through the legal process of a Foreclosure.
If you choose to go after a Short Sale property, your offer should be as clean as possible without a lot of contingencies. Also, the price is already discounted so coming in with a low-ball offer will guarantee a long wait. When the lender gets the offer, if it is clean, reasonable and all of the forms are included, one can expect an answer in 30 days or less. During this time, other offers may be coming in and this is where following the guidelines set forth above, will benefit you. Add lots of contingencies and come in too low and you will be guaranteed to go to the bottom of the stack or to collect dust on a vacant desk. In some cases, we have seen contracts languish for 6 months or more, waiting for an answer from the bank.
Summary: Good deals available, time varies drastically and patience must truly be one of your virtues! Go after only true Short Sales, make a reasonable offer, keep the contingencies at a minimum or out altogether.