Bullhead City Real Estate Blog

Often I am asked what the difference is between a “Short Sale” and a “Foreclosure Sale”. The easy answer is – timing.

A “Short Sale” occurs when the property is being sold for less than the amount owed on a mortgage or trust deed Promissory Note. This can be successful when the lender is willing to accept less than face value to release the note and avoid the hassle of foreclosing to take the property back. Today more and more lenders are willing to work with home sellers to accept short payment and clear their books. Pretty simple rule of thumb is to assume that the banks do NOT want your house – they just want their money. If they must foreclose, then they must deal with getting it sold with no reason to believe they will get any more money than they would have received by accepting a short payoff – and often times will net less after expenses related to holding the property and getting it sold.

For buyers the key to success when buying a home as a Short Sale is patience. Once an offer to purchase is presented to the seller it must be submitted to the lender for approval of the price and terms. Sellers generally are able to get an indication from their lender in advance that they will be willing deal and accept short payment, but the final approval as to the exact dollar amount that will be accepted is not given until a written offer is presented. Approval of the short sale by the lender can take from a few weeks to a couple months, so again, patience is the virtue.

A “Foreclosure Sale” occurs after the lender has already taken the property back and it is now being sold as bank owned property. Generally these homes are vacant and often in various stages of disrepair. Either the former owners were unable to successfully negotiate a Short Sale or they just walked away from the house and forced the bank to take possession.

Sometimes buyers assume that buying a foreclosure property will automatically be a great deal. My opinion is that while this can sometimes be true it absolutely is not always the case. Often buyers can get better deals by buying a Short Sale property that remains occupied by the seller through the close of escrow. Many sellers will continue to take good care of their home in spite of not being able to keep it, just from a standpoint of personal pride. Buyers also incorrectly assume that a bank owned property will be bargain priced beneath the fair market value. I have not seen this to be the case, as the banks really do want to get their money back and will price the property at what appears to be the fair market price.

For buyers the key to success when buying a home as a Foreclosure Sale is due diligence. It is imperative to do extensive comparison shopping to be sure the price is really great, and when an offer is written be sure the contract allows you sufficient time to have inspections done. Then take advantage of the opportunity to hire a competent licensed home inspector and make sure you know exactly what you are getting. You can be sure the bank will wash their hands of any responsibility to fix anything, so you may need to make repairs to bring property to livable condition. Also be careful to do a thorough final inspection just before closing escrow. Vacant homes are magnets for vandalism and your contract should hold the bank accountable for the home to be in the same condition when escrow closes as it was on the day you wrote the purchase contract offer.