Foreclosure vs Short sale

7 Replies

Foreclosure vs short sale.....pros and cons, ease of purchase, time to close, negotiating price, obtaining financing, etc etc..looking for as much feedback as possible.

Piece of cake versus Headache!

To your success! 

@David G

Which one is the headache and which is the piece of cake?

If I had to choose metaphors, I would actually go with Bi-Polar vs Depression. At least with foreclosures you occasionally get some surprisingly good news mixed in with misery.

Ease of purchase: Foreclosures are easy if you know what you're doing. What you bid, you pay (plus perhaps a buyers premium and all closing costs), and you settle quickly. Short-sales are a lesson in extreme patience.

Time to close: Foreclosures are either immediate (as in payment due within 24 hours) or within a month. Short-sales could take an eternity.

Negotiating price: Foreclosures are about being the high bidder, there is no negotiation. Short-sales are all about the price, and unfortunately it doesn't matter one bit that your seller likes the price you've offered. The seller is walking with zero cash regardless of your offer. It's all about getting third party (bank, banks, other secured creditors) approval and what makes them accept certain offers is not always clear.

Obtaining financing: With foreclosures you'll either need your own cash or private money. Even hard money can be difficult in the foreclosure scenario because you aren't able to inspect the property and generate estimates for repairs... so numbers aren't verifiable. With short-sales you'll have plenty of time to obtain financing.

With foreclosure you have to assume the worst... including the possibility that you'll have to evict the prior owners or some squatters.  You will occasionally have a really smooth transaction where you paid well under market and the property is in good condition.

Short-sales are a drag. Nobody wins. The seller loses a house, kills their credit, walks away with nothing. Everybody deals with endless paperwork. End result is usually a sale at market, which is hardly what an investor is looking for.

So, with all this in mind... any preference?

Short sales can be a pain but you also can get amazing deals at times. You also at times have more time to do your due diligence on the home. Depending on the market there may be less competition than at foreclosure auctions. You can also obtain financing when buying short sales if the property is in a condition to obtain financing on. 

At foreclosure auctions you may be dealing with people bidding up the property which can eat up an investors margins. You also need cash. At times you are buying homes sight unseen too or occupied which can present unforeseeable problems. 

With all cash. No loan. Conditions can be less favorable with a loan.

Short sale: success rate was 30%.  There are no one under water as home prices have almost tripled from past years.

Foreclosure sale: These days lenders want you to bid on line paying 4.5-5% hammer fee. You as agent may get 1% back.  There is no closing time so long there are other bidders. On one sale bidding went on all night past closing time it went way way over regular sale. Bidders can get a heart attack wake up every hour put another bid.

One sale I was the highest bidder, the bidding ended and seller did not accept any offers.

@Tom Gimer I think, you very nicely answered your own question. 

In essence, I can say that in So Cal, more specifically Los Angeles the success rate of closing on short sale homes is extremely low.  

Originally posted by @David G :

@Tom Gimer I think, you very nicely answered your own question. 

In essence, I can say that in So Cal, more specifically Los Angeles the success rate of closing on short sale homes is extremely low.  

Just making sure we're both on the same page.

Some on this site claim to have great success with short-sales... including obtaining properties significantly below market. Given the process and the participants, that just doesn't add up for me.

@Tom Gimer I cannot speak for other states, but in SoCal, Los Angeles specifically, short-sales are a waste of time. I've seen a lot of gamesmanship. 

I'd say we're on the same page. 

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