In this market there is a great number of short sale and pre-foreclosure properties for sale. What exactly does it mean? In a few words: it simply means that a bank might be willing to take a loss on this transaction.
A lot of people are under the impression that short sales are much better value then normal sales. It’s not always true; you should explore all your options.
Let’s do a small study: let’s pretend there are 2 similar homes in the same neighborhood. One of them was purchased by Seller 1 for $150K seven years ago, another home was purchased by Seller 2 for 200K two years ago (at the peak of the market) and Seller 2 put 10K down (5%).
Let’s say, now, the value of comparable houses like that is $170K. Seller 1 will have no problem selling his home for that price, he will even make money out of it. Seller 2 cannot sell for that much because he owes the bank $190K in order for him to move on he has to talk to the bank and convince the bank to accept only $170K instead of 190K. WE have a SHORT SALE scenario. But in both cases the price is 170K, so are you really getting a great deal?
What’s the difference between those two home sales? In first case, you will work with Seller #1, whose best interest is to sell the property and make the transaction as smooth as possible so you can close on time. He will most likely follow all the deadlines and be more understanding should problem arise.
In case two, you will be dealing with an unhappy Seller who is forced out of his house, and with a bank employee who is just doing his job. With so many foreclosures, banks are very busy and swamped with work so don’t wait for “on-time” response. Yes they want to sell the house, but they will try to get the best price for it to minimize their losses. They don’t really play by your rules, they have their own paperwork and time frames. Unlike real home sellers, they’re really “detached” from the properties they sell. They could take 1-3 months just to respond to your offer, and it could take sometimes 6 months to close a transaction. In most of the cases, their counter-offer is the actual appraised value which could be much, much more than the asking price you saw in the MLS.
Short sales and pre-foreclosures could be a very good deal, but you have to be prepared. You may have to be rejected many times before somebody accepts accepts your offer. You can go thru a very stressful process so you have to be very flexible time-wise. And, if bank is ready to close, you have to close, if not it could take a long time before you do. Have several back-up properties in your want list.
I would not recommend first time home buyers or people with very critical move-in dates to go into this type of a sale, it might ruin your home buying experience for a long time. There are alternatives we can offer such as builder inventories, bank-owned properties (REOs), and distressed sales from motivated sellers. We have the scoop so just contact us for more info.