Foreclosure V Short Sale
Posted on: 10 February 2018
If you're looking for a great deal on a house, you may be considering a foreclosure or a short sale. These properties can have motivated sellers that allow you to buy the house cheaper than if it was on the market regularly. However, you may wonder whether you should get opt for a foreclosure or a short sale. Here are the differences and the advantages/disadvantages to both.
​Foreclosure v Short Sale
Foreclosure
When someone can't make the payments on their house, the bank may eventually take ownership of the property and sell it themselves. That's a foreclosure. They are typically sold in auctions. The person who got foreclosed on will experience a 200 - 400 point drop in their credit score.
Short sale
Short sales mean that the homeowner knows that they may get foreclosed on so they take action before it happens. The property is sold by the homeworker instead of the bank. The owner of a short sale will experience a 50 - 150 drop in their credit score.
Buying a Foreclosure?
Pros
- The main reason to buy a house in foreclosure is because they are cheap! The bank is motivated to sell the house which gives the buyer more power when negotiating. Typically, foreclosed houses are sold at 5% lower than similar houses in the same area.
- Transactions usually close within 30 days.
Cons
- Foreclosures are sometimes sold "as is" meaning that you don't have a guarantee about the quality of the house. In these cases, it's important to have an inspector look at the house to give you their opinion. If you can't inspect the house at the auction, research the property first.
- When buying a foreclosed house, you are buying from the bank instead of a homeowner. This makes certain aspects of negotiating more difficult. There's not as much personal interaction.
Short Sales
Pros
- The seller of the house wants to avoid foreclosure. This gives you the upper hand.
- Short sale properties are usually in much better condition than foreclosed houses. You also get the opportunity to inspect the house before buying it.
Cons
- It's important to remember that the list price of a short sale is not guaranteed. It can actually take six months to get an answer about a short sale that isn't pre-approved. Despite working with the home owner, the bank must approve the agreement.
- Often times, the house will be cheaper if it gets to foreclosure.
Contact an agency, like Coldwell Banker Residential Brokerage , for more help.
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