Difference between Short Sale and Bank Foreclosures

Quiet a few people don't really know the difference between short sale and bank foreclosure and believe that a short sale can be bought very easy and for a good price.

Fact is that a Short Sale is very often very difficult to deal with. Banks/Lenders/Mortgage holders don't own the property yet, it still belongs to the original owner who most of the time has not (was not able to) make a mortgage payment for several month. The lender of course does not want to show the loss and they don't have to until it goes into bank foreclosure. The listed price for a short sale property is set by the Realtor or Property Owner and there is no guarantee that the property will sell to the listed price. Very often the bank comes back with a counter offer that is way higher than the actual price it was listed with. Very often it takes several month until the seller's lender shows any kind of reaction. As soon as the seller's mortgage holder gets an offer on a property in short sale they start making their "home work". The mortgage Holder has normally 30 days from receipt of an offer until they even start working on the file  and that only if  the current owner did send in all the required paperwork. If this is still missing it will even take longer.

From there the mortgage holder will order an appraisal or at least a BPO (Broker’s price opinion) and then they again have about 21 days (working days of course) until they can make a decision. Sometimes the mortgage holder will switch negotiators and then all the procedure and all the time lines start over again. I personally have 4 short sales pending, the oldest one is pending since May and just yesterday the appraisal was ordered for this one transaction.

If you are thinking about purchasing a short sale, you have to be extremely patient and you just need to expect that it will take quiet a long time until you get any responds if the mortgage holder will accept your (even full price or over price) offer. And all the time while waiting you might loose out on some other good deals out there. With the hot market in our area in South West Florida and the increasing demand for Real Estate we see price coming up already and in a few month (while you are waiting for an answer from the mortgage holder) you might not be able to purchase a similar home for a similar price anymore.

A Bank foreclosure however is easier. The bank/mortgage holder did cut their losses already, they have done all their home work and have all the information and documents they need for a closing in a timely manor. The list prices reflect the appraisal or BPO and the mortgage holder is ready to sell the property to list price. But the prices of course are based on an appraisal which is “older” and the property is higher in value now.  Now with those bank foreclosures we have a different dilemma. Very often we see multiple offers on one property and buyers are offering more than the listed price –just to get this property. That means even in a bank foreclosure for some good properties you need to be prepared to offer above list price.

But it is still a good time to buy – just bring a lot of patience with you and you will get a really good deal.