Short sales have been in the local news again with a lot of hype. A short sale is when a bank will except less than what is owed on the home as full payment. Home owners sell their homes after reaching an agreement with the bank, to avoid foreclosure. A short sale is easier on the credit rating but it will hurt the borrowers credit rating.
Short sales are the hardest kind of deal to work out. There are bank employees in far away states with 300 offers on properties located all over the country to plow through. What that means for the buyer is that they may have to wait months when they make an offer to get an answer.
It is fairly common for people to owe more on their homes than they are worth. I had a situation last fall where the seller paid too much for the home to begin with, and then it went down in value. The bank did accept a payment of less than what was owed on the home but it wasn’t necessarily a bargain for the buyer who went through extra hoops to buy a home at about the market value. He was attracted to the listing when he heard from neighbors that it was a short sale.
There is a lot of hype about buying both short sale homes and foreclosures and most of it is just hype. Yes there are bargains to be found, but how and why a home is being sold, is not what makes it a bargain. The homes that have been foreclosed on with the rock bottom prices require tens of thousands of dollars in repairs and code compliance. It is not unusual for a 50K home to require 100K in repairs and when it is all done, the home may only be worth 140K.
With the short sales buyers should keep in mind that there is a difference between what is owed on a home and how much the home is worth. Just because the bank will accept less than the loan amount as a payoff on the loan does not mean that the bank is accepting less than the home is actually worth.
The best bargains I am seeing these days are on the homes where the sellers have equity and are motivated to sell. I can look information on over priced homes and see that they were often purchased in 2004 or 2005. The sellers paid top dollar for them and now they need to get their money back so they can move on. The homes that are priced right are often owned by people who have been in them for ten or more years. These sellers have equity and tend to be a bit more reasonable when they set a price.
The best way to determine the value of a home is by comparing it with other homes in the immediate area that have sold recently and are similar to the subject home. Who owns the home and how it is being sold has never been a valid way to determine if it is a bargain.
Also see Foreclosures