At the crash of the real estate markets most transactions that were occurring were distressed sales. There are two types of distressed sales: Foreclosures (REO’s) and Short Sales. Most buyers did not understand the difference which led to confusion on how to proceed and what to expect when they were ready to buy a property they liked. Below I try to give you a brief on what to expect and how to best position yourself to get a great bargain in a distressed sale.
Foreclosures are sometimes referred to as REO’s (Real Estate Owned), these are properties that the bank has full control over. The previous owner failed to make payments to the mortgage and through a lenghthy process lost the property. When the bank is in complete control of the property, they hire a real estate agent to market the property in the local MLS to attract a possible buyer. Foreclosures generally list for a little below market value and in most cases sell rapidly. Generally these transactions are ready to close immeditely and they are no delays. We have seen cases in which a title defect delays the closing a few weeks, but generally the property closes in a reasonable time frame.
Our suggestions for purchasing a Foreclosure will be to consult your Realtor on any that might be available in your market of choice and gauge how active and quickly they sell. If the market is active, it is probably smart practice to offer the full asking price and be ready to provide proof of funds and qualification letters when submitting the offer.
Short Sales are a little different, and there is nothing “short” about them. Short Sales, are properties in which the seller, let’s say owes $500,000 to the bank on a property that is currently worth $400,000. The seller, finds a buyer (through the marketing of his Realtor) that is willing to pay current market value of $400,000. The seller then takes the executed contract and sends it to the bank for approval to sell the property “short” of what they are owed. The approval process can last anywhere from 2 months to 2 years!
Our suggestions for Short Sales are that you first enlist a Realtor that has worked Short Sales and is willing to be patient with the process. Your Realtor’s communication skills with the seller’s broker will be very important to the transaction as well as to keeping you up to date and to manage your expectations of possible results. In terms of qualifying for them you will also need a prequalification letter or proof of funds for the amounts specified in the contract.