Is Buying A Foreclosure Or Short Sale Property Really Worth It?
If you ask a real estate expert, they would tell you that buying a home through a short sale or foreclosure is the best deal you’ll ever get. But good things don’t come easy; the processes for short sales and foreclosures are fairly complicated compared to purchasing a resale home.
In case you are determined to buy a foreclosure or short sale home, you must understand the difference between the two. They have one similarity – the property belonged to a person in financial distress who can no longer afford to pay his mortgage.
Now let’s examine both options to understand what they are and how they are different.
What Is A Short Sale?
As it’s alluded to in the name, the proceeds from the sale will fall short of the debt owed on the property. Such sales occur when the bank (the mortgage holder) has agreed to accept an offer from a buyer that is less than what’s owed on the loan.
For buyers, it is a prime opportunity to buy more house for less. For sellers, it is a chance to get out from a mortgage that is no longer affordable without having to have your home foreclosed upon or go through bankruptcy. There is a catch for sellers, depending on the arrangement with your lender, you may still be responsible for the difference between what you had owed on the loan and what the bank was able to sell the home for.
What Is A Foreclosure Sale?
In a foreclosure, the mortgage holder repossesses the property and tries to recover its loss by selling it for the amount owed on the loan. However, this amount is still less than the market value of the home.
Foreclosure happens when the homeowner fails to pay his mortgage. After 3 to 6 missed payments, the owner receives a public notice indicating that he has defaulted on his mortgage. A grace period is given – usually between 30 to 120 days to pay the outstanding amount. The foreclosure ends if he is able to successfully pay the amount but if he cannot, the property goes to a foreclosure auction. If it does not sell there, then the lending institution, i.e. the bank, takes possession of the home and places it on the market.
What A Deal, Right?
You might be under the impression that people can score great deals on bank-owned properties, but the reality is different. Successfully closing a deal for foreclosure or short sale is extremely difficult. In fact, average home buyers hardly are up for it. Why? Because the process is risky, time-consuming and you still need a lot of cash for it. Before you make up your mind that you are going to buy such property, you need to be aware of the risks involved with buying homes in short sale and foreclosure. Here are some of the common ones:
When you are buying property that is either listed as foreclosure or short sale, there are a few things you must keep in mind.
- For a normal home, it takes about 6 to 8 weeks to close but when it comes to foreclosure or short sale property, it could take 6 months or even a year to close. Can you wait that long?
- For short sales, it could take months to get approval from the mortgage lender.
- In a foreclosure or short sale, you are not just dealing with the seller. The bank is going to be involved too. The issue with this is that the bank could make a counter offer that does not meet your terms or budget at all.
Other Risks Associated With Buying A Short Sale And Foreclosure Property
- Foreclosure property can be bought through the open market by the help of a real estate agent, county auction, and even a Sherriff sale. In some instances, you may not have the opportunity to view the inside of the house before buying it.
- You don’t just get the property; you also will be responsible for liens such as unpaid bills, title issues, code violations, and more. Before you sign up for it, do some research on your own to figure out what additional costs might be associated with the home. Consider all these costs before making a deal.
- When it comes to short sales and foreclosures, the homeowner might still be living on the property and it may be your responsibility to remove them.
Prepare Yourself For Extra Repairs
Since you haven’t seen the property, you must prepare yourself for home repairs once the sale is completed. Don’t forget the people who owned the property were in financial distress. So, it’s natural that some maintenance would be required even if everything looks good on the surface. It could also mean that some things may be missing from the home, such as appliances. It won’t be a bad idea to reserve funds for such repairs and replacements.
Foreclosure homes are sold as they are. The bank has no interest in making improvements in the property before the sale. Fortunately, the bank will allow you to conduct home inspection before you move in. But don’t expect that it will make any improvements called out in the report. That’s because the bank knows you are getting the house at a great price already.
Before you make the final call, determine whether this purchase is worth it or not. The price of the property might sound attractive but don’t forget there are the extra costs, repairs, fees, and uncertainty involved. If you are still interested in moving ahead with find a foreclosed home for sale or a short sale, contact The Lieberman Team and let’s talk real estate!