Every buyer wants a great deal, and many continue to show an interest in purchasing a foreclosure or short sale, with the understanding that buying a house for under market value will likely provide instant equity. As real estate professionals, itā€™s imperative that we set expectations from the beginning and help buyers understand the complexities of purchasing a distressed property.

Foreclosures

  • A foreclosure is a legal process in which the lender attempts to remove the balance of a loan from a borrower.
  • Banks have a lengthy process in place before the house arrives on the market.
  • The listing agent has to complete several assignments for the bank before the property goes on the market. This includes hiring a property preservation company to remove any items left behind and completing a broker price opinion to determine the homeā€™s value.
  • Bank response times to buyers vary and are nothing like the traditional seller who typically responds within 24-48 hours from the time they receive an offer.
  • Banks want the chosen listing agent to collect as many purchase offers as possible, but offers are accepted only after being on the market for a pre-determined, atypical period of time.
  • Some banks only allow owner-occupant offers, while others take offers from investors.
  • Buyers should always present their highest and best offer from the beginning.
  • Lenders may not allow certain loans on foreclosures due to the condition of the home.

Short Sales

  • The sale of real estate in which the net proceeds from selling the property will fall short of the debts secured by liens against the property is known as a short sale.
  • The seller has to be approved by the bank for the short sale. The approval, or denial, is based on a hardship the seller is facing. Common hardships include death in the family, loss of job and divorce.
  • A short sale can be accomplished if all lien holders accept less than the amount owed on the debt.
  • Thereā€™s nothing short about the process, so buyers with an immediate need should likely look elsewhere.
  • In some cases, banks can decide that the seller no longer has a hardship, pull the home from the market and put it back on 2-3 months later as a foreclosure with a different listing agent.

Your value-add in the distressed market is to convey to buyers from the beginning that purchasing a foreclosure or short sale is very different from the traditional real estate transaction.

Setting proper expectations in advance is imperative if a buyer is to successfully navigate a distressed purchase and if your business is to grow as a result of the transaction closing (and other future referrals from that satisfied buyer).