The difference between short sales and foreclosures.
Most consumers and many agents are confused about the difference between a short sale and a foreclosure. Here is a simple comparison:
Short sales are properties where more money is owed then the property is worth. In order to sell the property, the price will be less than the mortgage, so the bank has to agree to take a “short” payoff.
That is why they are called “short sales”.
The property is owned by a person NOT THE BANK. Please let me repeat, the BANK IS NOT THE OWNER! The bank simply holds the mortgage to the property and has to approve the sale; the short payoff. Short sales are still owned by owner/a person/the seller.
Buyer makes an offer to the seller, the offer is negotiated and signed ONLY by the buyer and seller. The contract is then sent to the bank for the banks approval. If the bank does not agree to the short payoff, there is no sale. If there is a first and second mortgage on the property, both banks have to agree. There is a contingency in the contract for a 3rd (or 4th) party approval…which is the bank.
Short sale List price vs. Approved price
When a short sales are listed, it is typically not a price that the bank has agreed to. It is just a best guess from the listing agent. Because many agents refuse to show short sales, sometimes the listing agents will price the home “fakefully low” in order to stimulate showings. Much lower than what the bank is willing to take.
Even if the bank agreed to take that price a month ago, does not mean that they will agree to it this month. With every offer the bank reviews, there may be a new BPO (Broker Price Opinion) ordered and a new person handling the short sale file. The bank can agree to approve or not approve any price that they want. They can do anything they feel like, whether or not it makes any sense.
The only thing the buyer can depend upon is the response time, it may take quite long and nothing will be as it seems. Typically the wait time is months and the bank can request that the buyer pay off some liens or that the seller sign a deficiency judgement agreeing to re-pay the bank the loss.
A foreclosure property is owned by the bank. The owner did not pay the mortgage and the home was repossessed by the bank. No different from a car repo. Since the bank now owns the property, they have the right to sell it. The bank has set the price and the buyer can either offer less, full price or more than full price. Usually the property is some stage of distressed condition.
Foreclosure Negotiations to Contract
On a foreclosed property, the bank does not need to review offers in the order received and can counter offer all of the offers, or reject all of the offers. They can negotiate more than one offer at the same time, or take a lower offer over a higher offer. There does not need to be any reason. Banks prefer “all cash” deals and prefer not to have any contingencies. They prefer not to pay buyers closing costs and usually are not willing to fix anything. In some cases however, we have gotten the bank to pay the buyers closing costs and even do some repairs.
If your written offer is accepted, you will then receive a supplemental bank addendum to sign that removes any personal items (like appliances) or dilutes any protection that you may have had in your original offer. Once you receive signed contracts from the bank, you can then do inspections and close in the next 30-45 days.
For expert help buying short sales, foreclosures, re-sales or new construction, call the Buyer Experts. Buyers Broker of Florida 407-539-1053