Author: Your Orlando Realty Admin

Home buyers and investors always ask, “Which type of deal is better, a short sale or foreclosure?” Before starting their search, prospective home buyers and investors should know the benefits and drawbacks of buying either type of “distressed” property – foreclosures and short sales.

Benefits to Buying Foreclosed Homes

According to Lender Processing Services, nearly 2.2 million homes in the U.S. were in foreclosure in April. On average, they sell for about 30 percent less than a nondistressed property, In April, the median price of a move-in ready foreclosure was around $185,000, according to Re/Max. A nondistressed property’s median price was about $267,300. Such deals are possible because homebuyers can negotiate closing costs and price in foreclosure sales. Buying a foreclosure typically is faster than buying a short sale, and an investor can buy a home for rock-bottom dollar. The national average of a foreclosure that needs some work may cost around $107,600, according to Re/Max. The investor could rent out the home or resell it after fixing it up. Investors should expect to spend no more than 5 percent to 10 percent of the purchase price to renovate a foreclosed house.

Drawbacks of Buying Foreclosed Homes

Are you sold on the idea of buying a foreclosure? Not so fast. Proceed with caution because there’s potentially a cost to that low price – a damaged house. Many foreclosed homes these days are ransacked homes. As a buyer, you could encounter scarred walls, carpets or appliances that were damaged by the former owner. Sometimes, time and neglect are the culprits. Turned-off utilities coupled with the house sitting empty for months can do a good share of harm. However,  some foreclosures are immaculate. And if you scope out a property that’s run down, there’s still hope. If a person is handy, and you have a high tolerance for defects and you can fix this stuff, there are a lot of opportunities out there. But in some foreclosures, the condition of the home may be the least of your worries. If you buy a foreclosure at auction without any research, you won’t get to take a peek to see if the plumbing works, if the walls are cracked – or if there’s a lien against the property. You’ll be responsible for these cosmetic and legal issues, so many investors research the property’s history before the auction. So, before starting your search for foreclosed homes, make sure you have a qualified real estate agent assisting you. You would be even better off if your real estate agent was a licensed attorney.

Benefits of Buying Short Sales

Looking for a foreclosure home price but in better condition? Sift through short sales in your local market. A short sale is still owned by the home owner, who owes more on the mortgage than the home is worth.

Many believe that a short sale is far better than buying a foreclosure because the home is generally in better condition because it’s been occupied. The utilities have been maintained, usually the lawn is maintained, and so on. In April, the median price of a short sale home was $218,500. By comparison, a nondistressed property’s median price was about $267,300, according to Re/Max.

Drawbacks of Buying Short Sales

The name “short sale” can be deceiving – these deals often drag on for months. Some sellers assume they can start this process at their leisure, but they still have to qualify for the short sale.

After the seller is approved, the first question a short sale buyer buyer should ask is whether or not there are two mortgages on the house. If there is a second lien holder on the short sale, that make the whole process much more difficult. Every lender and lienholder that has a financial stake in the house has to agree to the short sale. If the sale price of the home won’t pay off the second mortgage, that lien holder may not get paid, so that lender can block the sale. In the meantime, the buyer is stuck waiting for an answer.

Know What You Want

Nothing in real estate is a sure thing, but you can bet on getting a good deal if you know what you’re looking for in a home. If your family needs a house within one or two months, a foreclosure may be a good option. If you have more time to work with, short sales could be within your realm of possibility. Know your tolerance for defects and whether you have the time and money to fix up a house before buying a distressed home. If the choice is right, you could help a home owner put off a foreclosure if you buy a short sale. You can snag a great deal with either a short sale or a well-maintained foreclosed home, but one requirement remains – you must  find a good real estate agent.

If you are hoping to find an investment opportunity, you should look no further than investing in a short sale home. By doing so, you may be able to save thousands of dollars, and secure a rental home or primary home as your investment or primary residence. How does this work?

A short sale is an attempt by the current owner to sell a home in lieu of the bank taking it back through foreclosure proceedings, thus partially salvaging their credit rating and lifting the burden of heavy mortgage debt. The entire short sale process hinges on the hope that the bank will take a loss now, approve the sale, and eliminate the costly process of foreclosing, clearing, and reselling a home. Here are a few tips originally provided by Todd Foust and Jennifer McNamara to help you better understand the short sale process.

Tip #1: Price is usually set by the real agent & seller, not bank – The real agent and seller of a short sale home often create a very low asking price in order to attract buyers. The bank is normally unaware of the asking price in a short sale; however, the bank has the final say in what an acceptable offer will be. Since the bank has the power to ultimately accept or deny offers, their lack of price awareness often leads to the process taking longer than anticipated. The bottom line is that the buyer who is investing in a short sale home needs to remain positive and patient throughout the entire process, sometimes even for months.

Tip #2: Loans owned by 1 bank usually better than 2 – If the seller of the short sale home has loans owned by two different banks it is a lot more difficult to approve the short sale. This is something the real estate agent or the buyer cannot control; it simply depends on the willingness of the bank or banks involved. Buyers investing in a short sale home should know that when the seller only has a loan(s) with one bank the short sale often becomes more buyer friendly. A savvy real estate agent can let you know this type of information.

Tip #3: Lowball offers get slow or no response – Remember that the bank is typically unaware of the pricing during a short sale. When lowball offers stream into the bank they are often scoffed at and rejected, giving the prospected buyers little or no feedback. Surprisingly, it may also take painstakingly long to hear back even on good offers due to the high volume of transactions lenders are inundated with these days. So if you are a buyer interested in investing in a short sale home, you need to find a qualified real estate agent to walk you through the process.

Tip #4: Real estate agent must check comparables before submitting offer – The real estate agent must be sure to check recent home sales in the area to give buyers a better idea of the properties that are selling both short sale and non short sale. This will give the real estate agent and the seller appropriate grounds for an asking price that will be more likely to be approved by the bank. Checking comparables will also give the buyer who is investing in a short sale home a better knowledge of what price homes in the neighborhood are selling for, and ultimately make them a more informed home buyer.

Tip #5: Don’t hang your hat on the property – Short sales aren’t necessarily “short.” It can sometimes be a very long process. So if your goal is investing in a short sale home don’t get your hopes up for just one property. Keep your options open and continue to actively look at multiple properties. Buyers must remain optimistic. The right property will come along. In most areas it is completely legal and risk-free to have multiple offers out at any given time with the proper contingencies.

Tip #6: Sellers with other properties or too strong of financials may not qualify for short sale and/or may be asked to pay the difference – Sellers that own more than a handful of properties or have an extremely large net worth will probably not be eligible for short sale. In some cases the seller will be asked to pay the difference of the sale. The seller might even need to sign a promissory note stating that they will pay back all or most of the debt. This has virtually no effect on the buyer as long as the seller cooperates, but can certainly decrease the chances of the short sale being completed.

Tip #7: “Approved” prices are quickest – It is important to remember that short sales are not always timely. However, making an offer on an “approved short sale” can be a quicker process. An “approved short sale” has a price that has already been given the green light by the bank. This could be due to the fact that another interested buyer made an offer that was approved, but didn’t end up buying the property. These types of short sales are some of the most highly desirable. So, if you are set on investing in a short sale home, look for these properties.

Tip #8: Some banks look for strongest buyers, some want strongest offers – The bank has all the power in approving short sales. The bank can pick the most appealing buyer, which may mean different things to different banks. Some banks may prefer the buyers with large down payments while others just want the highest price regardless of down payment. Many investors of short sale homes want to know if they will get a deeper discount for an all cash offer. This is very hard to predict and one will never really know until they make an offer. As long as the investor/buyer is surrounded by a good team we would advise them to do just that.

Tip #9: Repairs are seldom done, credit is more frequent – If there are improvements that need to be made on a short sale home, even if they are necessary to get a loan, it is often unlikely that they will be done. Typically there is some sort of credit issued and the buyer must take the responsibility of fixing anything that is broken. This is one of the small risks that comes with investing in short sale homes.

Tip #10: When you get approval, you must close on time – During a short sale there is no leniency with the closing escrow date as there often is in a traditional sale. During a short sale, exceptions are rarely made and the buyer must close on time. Because of this, when investing in a short sale home it is important to take care of all loan paperwork immediately after opening escrow. We’d advise buyers to be extra prepared and try to have the loan finalized a few days in advance of the closing date. If there is going to be an issue that will prevent closing on time, a request for an extension will need to be made immediately. If the request is made early enough, many banks will grant an extension but don’t just assume it will happen.

Investing in short sales can be a great opportunity to find your new home at a competitive price. A Short sale could also be a major headache that lasts for months. It is important to have a good understanding of the factors that lead to a successful short sale to make it an enjoyable and profitable experience. We hope that these tips will help you to remain positive and optimistic throughout the process.

If you are hoping to find an investment opportunity, you should look no further than investing in a foreclosed home. By doing so, you may be able to save thousands of dollars, and secure a rental property as your investment. How does this work?

To begin, a foreclosed home is one where the homeowners no longer can, or wish to, make their mortgage payment. When that happens, the bank takes back title of the home, and puts it back on the market. Usually, they start by listing the house very low in hopes of selling it quickly. They just want to try and get their money back. For this reason, you can sometimes find a great deal on a beautiful home. This makes investing in a foreclosed home a great and smart choice for rental property.

If you think that investing in, or buying, a foreclosed home is right for you, then you may want to start looking at the different foreclosed properties that are on the market. To see a list of foreclosed homes in your area, contact a local real estate agent and request a detailed list of these homes. Take note of the different neighborhoods, and school zones. You will want to find foreclosed homes that are in fairly popular areas so that your property will move quickly whether you rent it out or resell it for profit.

As you look at different foreclosed homes, also pay close attention to the condition. You should have a pre-conceived idea of certain qualities that you want in a home. Everything from the number of bedrooms, to the size of the lot should be on your list. By doing this, you won’t end up buying something that you are not happy with.

Next, you’ll want to look into getting a home loan. If you get pre-approved, you can move forward with an offer on the home. Waiting to get your offer accepted can take some time due to the paperwork involved, so be prepared. Eventually, you will learn whether your offer was accepted or not. If so, you will be ready to begin renovation on the foreclosed home to serve your investment purpose.

When it comes to renovation, seek out some experts to advise you. It will be worth it. Check out which areas need to be addressed, then sit down and write out a list of things that need to be taken care of right away. After a while, you will be able to move forward, and put the home on the market. Always start with the bigger projects first, then move to the smaller ones as you as you have the time and money. And, as always, don’t forget the outside! Curb appeal is what’s going to bring in the renters and buyers the quickest.

For more information about foreclosed homes in the Orlando area please contact us.