Foreclosures and short sales

Short sales and Foreclosures are not the same

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Short sale

is a property being sold for less than is owned on the property. Short sales are starting to diminish in Central Florida. Short sales are never what they appear to be and it is rare that the actual sold price is less than the listed price. Most buyers of short sales become frustrated with the increases in price needed and unusual terms that a bank might request. There are usually long delays in trying to get bank approval. Typically, it takes months for a response and most of the time the bank wants more money than the listed price.

Who really owns the Short Sale property?

In a short sale, the bank does  not own the property. There is still a property owner in possession of the property even though the owner is more than likely not paying the mortgage. The property may be in pre-foreclosure but has not yet been repossessed by the bank in a foreclosure process.

Why is it called a Short Sale?

In a  short sale  the bank will have to take a  short payoff  on what is owed, so the bank has to approve the sale. More money is owed than the property is worth, so nothing in a short sale is simple. Since the bank will be taking less than is owed, they have to approve the sale and the terms. Many of these properties have more than one mortgage and sometimes they are from different lending institutions. That is where many of the problems come from, because everyone has to agree to what they are willing to accept.

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Why are Short Sales priced so low?

The bank does not set the price or indicate what they are willing to take. The list price of the property is decided typically by the listing agent (and owner) and not the bank. Short sales do not get a lot of buyer traffic, so the listing agent will set the price low in order to stimulate interest. If the property does not sell, the price will continue to be reduced until it appears to be a real bargain to a buyer. Realistically not so, because the banks don’t want to give away anything. The bank will counter with a higher price and try to squeeze all the money they can. Banks often are unreasonable and may reject even reasonable offers.

Foreclosures

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In a foreclosure process, the bank repos the house no differently than a dealership repossesses a car. The bank takes back the property and now becomes the owner.

First the home owner gets behind on mortgage payments. The bank gives notice to the owner of what mortgage amount is overdue. If the owner does not bring the debt current, they will be given a Pre-foreclosure
notice. This tells the owner that they are facing losing their home to a foreclosure if they do not pay the debt in full. Typically, it is not a matter of trying to make additional payments. The whole delinquent amount is due to be paid in full including attorney fees, making it difficult to catch up.

In Florida, due to a backlog of foreclosures, the foreclosure process may take up to 3 years to complete. Meanwhile, many of these properties are on the market as short sales.

How are foreclosures priced?

Higher than most buyer think. Many buyers assume that because the bank owns the property that it will be a bargain. Many buyers also assume that the bank will only want enough to cover what was owed on the property not so on that either. Banks are not in business to sell anything cheap, particularly if the property is affordable, because they will get multiple offers. On luxury property, the bank will discount, because of the limited pool of homebuyers the fit that budget.

Multiple offers on Foreclosures

Most bank foreclosures get multiple offers. The bank can accept one offer, counter offer all or reject just some. They do not have to respond to offers in the order received and may accept an offer while you are evaluating their counter offer. Many times they will request highest and best in the next 24 hours. That means that every buyer who is interested can re-submit another offer with their highest and best offer. Sometimes banks will only look at all cash offers and sometimes they will take a higher financed offer. There is no way to guess what they are looking for even the listing agent has no clue. The properties are sold in as is condition (subject to your inspections) with the bank not willing to fix anything.

What condition are Short Sale and Foreclosure properties?

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Short sales vary in the condition of the property. Most of the time the owner is still living in the property but will not spend any money maintaining the property in good condition. They will not benefit from the sale, so even if they are not paying the mortgage, they have no incentive to fix whatever breaks down. On occasion, the owner has  pride of ownership  and will keep the property in pristine condition. Other times, the seller will move out early and leave the home to vandals. It just depends. The condition of foreclosures will also vary, but foreclosed homes are vacant.
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What the property looks like depends on the community itself and also the bank who owns it. Foreclosed property may still be trashed, but lately, the banks are spending money to spruce up the appearance. They have realized that cleaning, painting and putting in flooring may result in netting the bank more money on the sale. Buyers need to be aware that the fix up may be all superficial, with bigger problems not visible.

Expertise on Short Sales and Foreclosures

The Buyer Agents at Buyers Broker of Florida are certified, experienced and have advanced education in short sales and foreclosure. Ask us anything 407-539-1053

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