What’s the Difference Between Short Sales, Foreclosures and Traditional Real Estate
Residential real estate has been turned upside-down in the last 4 years. Purchasing a home was a fairly simple process. A buyer could find a home they like, make an offer directly to the owner, negotiate price and terms, then close within thirty days. Today real estate is a completely different world and the market is dominated by short sales and foreclosures ( up to 50% of all sales in some areas). However, there’s a lot of confusion concerning expectations and values between these types of sales. The largest differences between the three types of sales are price, timing, terms, and condition.
A traditional real estate sale will usually reflect the top price of the market. In most cases the owner has maintained the home and will quickly negotiate reasonable offers. In addition they will be open to fixing problems that come up during an inspection. This situation is ideal for a purchaser that wants to quickly.
Short sales are a type of distress sale where the owner can not keep up with mortgage payments or property maintenance. This type of purchase can take between two & six months before receiving a counter offer from the seller’s mortgage company. Most cases the seller will likely not make repairs to defects in the home. The typical discount when purchasing a short sale is 13%-30%. If you have time to wait and don’t mind making a few repairs this can be a great option.
Foreclosures are usually the deepest discount, but there are many unknowns. The home has been vacant for some time and an empty home in the winter has a high probability of frozen water pipes which then break. Repairs can be extensive and a buyer will need cash or a rehab loan. If the repairs needed are extreme, the home may not qualify for financing. A very thorough home inspection is needed to determine what type of repairs are necessary and how they will cost. Responses from the bank are usually quick and very from 24-72 hours. Closings can also happen quickly and in 30 days or less. This is definitely a “buyer beware situation.” If not planned properly a foreclosure could turn into a money pit.
When purchasing a home you must consider which option best fits your situation. Before falling in love with a home find out what type of sale it is and can it be financed. Realistic expectations are critical.