Right or wrong, one person’s misfortune can be another’s opportunity. Short sales and foreclosures may offer homebuyers a great value – if they have some flexibility.

Here’s an overview of the implications of short sales and foreclosures.

A short sale happens when a seller’s lender agrees to accept less than its unpaid mortgage balance to facilitate a sale between the seller and buyer, and banks take a long time to decide. Some short sale buyers wait six months or more for a response. More than half the time, the answer is no.

Buyers gravitate toward short sales because the price is attractive and the seller is desperate. However, neither idea is necessarily true. Since not every short sale home is in foreclosure, not every seller is desperate. Moreover, sellers often set the listed price unrealistically, hoping that buyers will flock to that listing.

Short Sale Negotiations

The sellers can agree to any type of purchase offer put before them for signature, but it’s not binding unless the sellers’ bank approves the offer. No offer terms matter if the bank won’t accept them.

Banks rely on desktop appraisals and third-party BPOs (broker price opinions) to determine value. Although banks don’t want to follow through on a foreclosure, they also want fair market value. It is up to the listing agent to provide comparable sales and to substantiate the price submitted by the buyer.

The Price After a Foreclosure

Whether a buyer should wait for the property to go through foreclosure and be deeded to the bank depends on whether the home has multiple offers. If more than one buyer has submitted an offer, the highest and most qualified offer will most likely win.

If the buyer is the sole offerer and the bank is responding negatively or, worse, not at all, it might be in the buyer’s best interest to wait out the foreclosure.

Sometimes banks are unreasonable and shoot themselves in the foot. A bank could refuse a short sale offers only to make back tens of thousands less in a foreclosure.

Don’t get discouraged if the bank rejects your short sale offer. Be smart. Submit that offer again, and you might get a different negotiator. The listing agent might be able to submit revised documentation on the seller’s behalf that could impact how the bank will look at the short sale file.

If no one else submits a higher offer eventually, the bank will put the home up for sale as an REO. It will reappear on the market as a bank-owned home. If the price is reasonable at that point, buy it from the bank. Buyers of foreclosed homes are relatively assured their transactions will close within 30 days or so, and most likely at a much lower price.

Navigating the world of foreclosed or short sale real estate can be daunting. Don’t face it alone! If you’re thinking about buying or selling a short sale or foreclosed home in the Hudson Valley, New York, Philadelphia or Pennsylvania, contact me, Paul Biagini of Biagini Realty and I’ll help you navigate the short sale and foreclosure process to help you get the home of your dreams!