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, it’s imperative that we set expectations from the beginning and help buyers understand the complexities of purchasing a distressed property.


  • 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 home’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.
  • There’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).