There is a big difference between a foreclosure and a short sale.
What is a Foreclosure?
A foreclosure is where the property is already owned by the bank, and the bank is now the seller. The former owner couldn’t make his house payments, so the bank (his mortgage lender) took the house back. The good thing about a foreclosure is the bank/seller has already determined what their bottom line price is. They already know what they can or cannot accept. Typically, they will negotiate some, and can usually close within 45-60 days. Generally speaking, foreclosures are the less risky and less painful of the two.
What is a Short Sale?
A short sale is where the property is in danger of foreclosure, but it hasn’t happened yet. The homeowner cannot make his house payments. He is behind at least 30 days. He may still be living in the home. He plans to go to his bank and ask “will you take a payoff SHORT of what I actually owe?” Hence, the term Short Sale.
Short sales can be difficult. Mr. Homeowner always doesn’t know IF his bank will accept a payoff short of what he owes. So, his advertised price may not even be what his bank will allow it to sell for. Another challenge; will the bank allow a closing to happen anytime soon? I’ve heard of short sales taking up to 11 MONTHS to close. Ouch! Banks are notorious for taking a long time to negotiate these deals.
What I tell Buyers is if you can stomach the uncertainty of price, the long wait to close, and not knowing until the last minute if this transaction will even close, then go for the short sale! But prepare yourself for frustration and possible disappointment. If you want a good deal without that hassle and risk, stick to the foreclosed properties.