Foreclosures
Will you get a better deal by
purchasing a foreclosure? Possibly, but not necessarily.
Most foreclosed properties need some repair. Some of them
need a lot of repair. Most banks are not it the repair and
rehab business. Banks will usually do the minimum
necessary repairs to get the property sold. If you
purchase a foreclosure, you are purchasing it in "as-is"
condition with all flaws and problems. Banks are not as
flexible when it comes to negotiating on repairs that your
inspector may find. Speaking of negotiating, most banks
have a contract addendum that they require on all properties.
The addendum typically takes away a lot for the buyer
protections found the standard purchase contract used in Texas.
The addendum is usually not available to the buyer at the time
they make an offer. If the bank accepts your offer, they
will send you the addendum as a condition of acceptance.
Another concern when dealing with a bank is that you will be
treated with the hurry up and wait attitude. The bank will
expect you to turn around contract signatures in 24 or 48 hours,
however it is common to wait weeks for the bank to sign things
on their end. Most banks are dealing with thousands of
foreclosures all across the country. It is not uncommon
for the bank representative assigned to a property to have 100
or more properties assigned to them across the country.
Your offer may end up on the bottom of the pile and not even be
looked at for weeks. The same holds true for closing.
You will be at the banks mercy when trying to schedule a
closing. They can only process so many closings at a time,
and you may have to wait a week or more past your scheduled
closing date just for them to close things on their end.
This can impact your moving schedule, your interest rate lock,
and your utilities start date.
If you can handle all of the risk, the repairs, and don't mind
being at the mercy of the bank, you may be able to get a good
deal on a foreclosure. The good foreclosure deals tend to
go under contract quickly and frequently have multiple offers
from buyers. Even if you find a good foreclosure deal, you
may get out bid by another buyer.
Short Sales
What is a Short Sale and is it a
good deal? A short sale occurs when the market price for a
property is less than the seller owes on the current mortgage.
When this occurs, the seller has two choices: 1.
bring money to the closing to make up the difference or 2.
negotiate with the bank to forgive a portion of the outstanding
balance. The second choice is known as a short sale.
Why would a bank forgive a portion of the outstanding balance?
If the seller is behind on payments and it looks like the bank
may have to foreclose on the property, the bank may decide it
will cost them less to forgive a portion of the balance now than
it would to wait a couple of months and foreclose on the
property. From the banks perspective, it's all about what
is a better financial decision for them. Banks can lose
anywhere from 10% to 30% going through the foreclosure process.
If they can approve a short sale and take a smaller loss, then
they may decide to do that.
As a buyer, what do you need to know before purchasing a short
sale? First, the bank is not under contract with the home
owner to approve the short sale. At any time during the
purchase process, the bank can back out and not approve it.
If you have invested time and money in inspecting the home, you
will not be reimbursed. Secondly, the bank is in no hurry
to forgive a portion of the seller's outstanding balance.
This means that it can take months from the time the contract is
received until the bank responds with an approval or denial.
These two facts alone deter most buyers away from short sales.
You have to decide if the risk is right for you.