Home Selling Questions | The Difference Between a Short Sale and a Foreclosure

I had worked in real estate for several years before I had experienced a short sale. A Short Sale, is just that, the homeowner is either in default or about to default on their mortgage, and they hoping to sell their home for less than what they owe. In other words they want to sell it “short.” While the homeowner may get permission from their Lenders to sell short, the Lender does not approve the short sale price. For a Buyer, the biggest downside to a short sale is that the Lender can and does take 60 to 90 days to answer an offer. Within that time period, the home is still for sale and other offers may come in. The Lender often times will reject all the offers and counter with a higher amount than what the homeowner is asking. They also can ask the Buyer to pay any past due fees, such as liens or HOA fees, that may have accrued. It can be a frustrating and disappointing process for a Buyer.

A Foreclosed home is one that the bank or Lender has already taken back because the homeowner has defaulted on the mortgage. They foreclose on the loan. Banks and Lenders are not in the business of owning homes, so want to sell the home and try to recoup the money that is being lost. They may try to sell it a public auction or sale, or they may turn it over to a real estate agent who will put it up for sale.

Once a home is taken back or is owned by the Lender it is called a Real Estate Owned property or an REO. There are pros and cons to buying an REO.

Once the bank owns the property, a potential Buyer can usually arrange for a title search and will be given access to the home for inspections. The bank now has a vested interest in this home and they want to get out from under it and recover some money, so they may be more likely to finance a home they own. Also, typically an REO is a vacant property and once the bank accepts an offer, the new owner can have immediate access to their home.

The downside to buying a foreclosed home is that it is typically an “as is” sale. Good inspections are definitely advised. A homeowner who has not been able to pay their mortgage has most likely deferred maintenance on the home.

Many times you can get a great deal on a foreclosed home, but make sure your realtor checks on comparable sales in the area. A bank wants to make as much money as possible.

Finally, even though a bank wants to sell, they can be very unresponsive and often times it will take several weeks to get a response to an offer. Many times they will counter back all the offers, asking for the potential Buyers “best and highest” offer.

If you are patient, are ready to buy and you have a real estate agent who will do their homework, foreclosed sales can be a great way, especially for first time Buyers, to buy a home.