Many consumers and some agents are confused about the difference between a foreclosure and a short sales, so here is a simple comparison:
FORECLOSURE: Owned by the bank. The last property owner did not make timely payments, so the bank repossessed the property in a foreclosure sale and bank now owns it and has the right to sell it. The bank has already set the price that they want, and buyer can either offer less, full price or more than full price. Usually the property is in some stage of distressed condition. Banks selling a foreclosure like to see cash buyers, quick closings, and they will usually negotiate some, but many times will receive more than one offer.
The Bank on a foreclosed property does not need to review contracts in the order received and can counteroffer all of the offers, or reject all of the offers. They can negotiate more than one contract at a time and take a lesser offer over a higher offer, or just want “all cash” offers, however they may also accept financed offer. Some banks do not like to pay buyers closing costs or fix anything but in certain situations we have been successful in negotiating the buyers closing costs included in the purchase price and even getting an item fixed.
If your written offer is accepted, you will then receive a supplemental bank addendum to sign that negates any personal property (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 do inspections and proceed to closing in the next 30-45 days.
SHORT SALE: Owned by a person/seller , not the bank…let me repeat…THE BANK IS NOT THE OWNER! The bank does not sign the contract between the buyer and the seller because the bank is not the one selling the property, they only need to approve the short sale.
Buyer makes an offer to the seller, the seller negotiates the contract and signs it. Then the contract is sent to the bank for the banks approval. A short sale means that the bank must agree to accept less than is owed on the property and they have a 3rd party approval (a contingency in the contract)…if the bank does not agree to the price for the short sale, then there is no sale. If there is more than one lender involved on loans owed, they all have to agree. This is a “contingency in the contract” no different than when the buyer has a contingency in the contract for financing (another 3rd party approval). If a lender does not grant the buyer financing, then there is no deal. Same thing.
When a short sale price is listed, the list price is just a best guess from the listing agent…it is not a price agreed to by the bank, so do not rely on your offer as the final selling price. Even if the bank agreed for the seller to sell at a certain price last month, it does not mean they will agree to it this month. With every offer they review, there may be a new BPO (Broker Price Opinion) ordered and a new person handling the short sale file. The bank can decide on any price they want and do anything they feel like, regardless of whether or not it makes any sense. The only thing the buyer can depend upon is that the wait for a response from the bank on the short sale will probably be long.
Bank Foreclosures and Shorts Sales may be a bit tricky, but not impossible to buy. For a detailed guide on how to buy short sales and foreclosures in Central Florida, please send us an e-mail or call for a personal consultation.
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