Should I buy a foreclosure or a short sale?
You have no idea how many people ask me this question. And of course, there is no right answer. The reality is, no one is forcing you to buy either a foreclosure or a short sale. There are houses on the market that are neither foreclosures nor short sales. One of those just might be the right home for you.
But regardless, many people have it in their heads that in order to get a great deal, the property must be foreclosed or selling short. If you have absolutely decided that you must buy a foreclosure or a short sale, that brings us back to the title of this post. Which should you buy?
While there’s no right answer, foreclosures are typically much faster to process. They are often cheaper than short sales, and while you can’t expect much help or any information from the bank, if you need to close quickly, it’s safer to stick to a foreclosed property.
On the other hand, if you have time to wait, and the home of your dreams happens to be a short sale, go ahead and place an offer. With any luck, the short sale home you’re buying may be a “pre-approved short sale”; this means that the lender has issued a bottom line number to the seller, and if the offer is at least that amount, the short sale can be processed fairly quickly. Most homes, however, are not pre-approved.
Another advantage of buying a short sale is that the home may not be vacant, and therefore less prone to damage or vandalism. Foreclosed homes are usually vacant, and if they are damaged (i.e. water or storm damage), often no one knows for a while.
Banks are supposedly streamlining their short sale processes, and sure, they’ve sped up a little, but I haven’t seen results yet. Last month, the Federal Housing Finance Agency stated that the short sale process will change for Fannie Mae and Freddie Mac-backed properties starting in June. Among other changes, the mortgage servicers will only have 30 days to respond to an offer. If they don’t respond in 30 days, they have to provide an update every week. And after 60 days, they must give a final decision, no matter what.
Most banks, however, still seem to be acting on their own whims. Most files languish and sellers and buyers get frustrated. Many times buyers back out of the contract to pursue other options. And of course, at the end of the day, not every short sale gets approved.
If you find a foreclosed home you love, go for it. If you find a short sale you love, go for that. Just keep in mind the pros and cons of each, and hopefully you make the right choice!