The lure of a bargain is irresistible. That's why home buyers are attracted to distress sales. But with many websites listing so many properties that are not for sale or have sold, it can be difficult to know what's really out there. And once you do find a home that's available, getting a deal done can be a huge challenge. The first step to navigate distress sales is to understand the three types of home sales.
The value of the home is greater than the home mortgages, so the seller is able to negotiate a deal with a buyer, payoff the mortgages, and convey clear title at settlement.
The homeowner has title to the property, but the value of the home is less than the home mortgages. To deliver clear title at settlement, the seller's bank(s) must agree to remove their liens and be paid 'short' of what's owed by the seller.
The bank has taken title from the homeowner through the foreclosure process. These are also called REOs (Real Estate Owned) and Bank Owned properties. To purchase a foreclosure, a home buyer negotiates directly with the bank, and the bank delivers clear title at settlement.
We've helped buyers and sellers for all types of sales. We would say we've seen everything, but every new deal seems to have it's own I-can't-believe-this-is-happening moment. Here's our perspective on these types of sales.
Short Sales: No Fun for Anyone
No one enjoys a short sale: the buyer, the seller, the agent, the negotiator - no one. Short sales are problematic because the servicer of the mortgage must review the seller's financial situation, evaluate the contract to the home's market value, and get investor approval. You would think banks would be super-efficient at processing a short sale by now, but they aren't. Documentation must be submitted, submitted again, and then again. They require special addenda from all parties, and then require it again. Banks will not accept electronic signatures, so you're printing/signing/faxing/scanning over and over. The process takes months, and no one can tell you when a contract will be approved, rejected or countered. And after months of work, many (most?) contracts fall through.
But a buyer can get a great deal, so it's worth it, right? Sometimes, but not often. Sellers don't make repairs, and banks often put the home's value at the top of the market, so they won't allow the home to be sold at a bargain price. A buyer should only consider a short sale if they have plenty of time and patience.
Foreclosures: No Fun Either, But Less Painful.
A foreclosure is the legal (and lengthy) process by which a lien-holder takes title from a homeowner. Once the bank takes title, they put the home on the market for sale. You submit an offer to the bank and negotiate directly with the bank, so it doesn't take months to receive a response. That's the good news.
Now the bad news. Brokers who typically represent banks are paid very little. They often manage a lot of properties so don't expect quick turnaround on anything. Once an offer is submitted, it can be difficult to get a written and timely response. When the bank does respond they will send a stack of disclaimers, and then later find more disclaimers to sign. And, of course, electronic signatures are rarely accepted so you're back to printing, signing, scanning and emailing again. Banks hardly ever do repairs, and typically - but not always - the home is in poor condition.
But you can get a great deal, right? No, not really. Most deals are just OK. If the home needs work, any savings are quickly offset by repairs.
Another frustration for buyers are foreclosure sites that list homes that are not available for purchase. If a homeowner is going through the foreclosure process, public notifications trigger entries on these sites. Consumers are led to believe these homes are available to purchase when they aren't. If a homeowner wants to sell, they will put it on the market as a short sale.
Regular Sales: The Best Deals?
As we look back, the best deals we've helped buyers get are regular sales. A highly motivated homeowner who has significant equity in a home is the best opportunity to get the best price on the best home. You negotiate with one party and quickly get a deal done. Homes are in much better condition, and sellers will often make repairs.
So when looking for a bargain, look at all homes on the market. You never know where you'll find the next great deal. Here's a list of today's newest foreclosures available for purchase.
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