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Buying a Short Sale vs. a Foreclosure

A buyer on the market for a short sale or foreclosure is essentially trying to find a great deal on a property.  Properties in either one of these situations can range from pristine to shambles and buyers, like any property transaction, intend to either move in or flip and sell.  But what is the difference between a short sale and a foreclosure and how does that affect the transaction process?

Short Sale

Generally, the owner is still living in the property, owes more to the bank than the market value of the property, and is undergoing a process to have the bank accept a payoff of the loan that is ‘short’ of what they owe.

shutterstock_516057835 (1018x1024)Purchasing a property through a short sale can be unpredictable as each one is different.  The seller’s process of having the short sale approved by the bank determines the transaction timeline for the buyer, but generally, this process can take 60-90 days.  If a larger bank is involved in the property, it may take longer for the short sale as well as the offer to be approved as they have more people that need to review the terms, but are more likely to approve it at all.  Smaller banks have less people involved in the review process but are less likely to approve ‘shorter’ sell prices.

Inspections have to be handled depending on the offer process.  Like always, buyers generally want inspections to safeguard themselves and their future plans for the land and property.  If the seller is only accepting and reviewing the one offer, it’s likely in the buyer’s interest to set up the inspection once the seller has accepted their offer.   The buyer should know ahead of time what the property’s condition is and what the financial burden will be for repairs as well as it is much harder to have to renegotiate offer terms once the short sale is approved vs going in with your best offer from the beginning.  If the seller is sending all offers they review to the bank and letting them decide, it can make more sense for the buyer to wait for their offer to be accepted before paying for the inspection.  Timelines for mortgage contingencies and closings should be based on receiving short sale approval.


shutterstock_246334387 (1024x695)Foreclosures are properties that have surpassed short sale status.  The bank has taken ownership of the property which is typically vacant.  Foreclosures can be purchased in a very similar fashion to the regular buying process with the main difference being that a bank owns the property and the listing agent is the middleman for a large corporation.

It is often the case that the buyer has to assume the standard seller costs which can include Title 5, fire inspections, and winterization.  Foreclosures are generally advertised and sold, sometimes auctioned off, ’as-is’ but inspections are permitted to the buyer.  Extra time needs to be allocated for negotiations as banks will require repair estimates and contractor bids.

For the Buyer

In either the short sale or foreclosure buying process, it is absolutely essential to hire an experienced team to represent you.  A real estate attorney with experience in these rigorous transactions will be able to include the proper and recommended contingency timelines to protect the buyer during this process, as well as the regular due diligence with all document review and management through closing.  Your agent will be able to help you navigate this complex process and find the property with the most to offer at the best price possible.  Lamacchia Realty agents have the experience and expertise to assist buyers in either types of these transactions.  Lamacchia Realty is a full-service brokerage and can help you begin this process today.  Call us at 1-800-924-6563 or contact us by clicking here

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