One of the questions that we most often from clients trying to buy a home or an investment is for us to point out the differences from a Short Sale and a Foreclosure. Below is an attempt to define each of them to explain the differences between these two opportunities.

Short Sale

A short sale occurs when a seller owes more to the bank than a buyer is willing to pay in the current market. In this case the bank approves the sale of the real estate at a loss and the bank absorbs the loss and in some cases the seller is freed from the debt to the house, or at least most of it. In these instances you, the buyer, will be dealing with the seller/owner directly (since the bank has not foreclosed on the property yet) and you will agree on a price as you would for any other sale. The only caveat is that after the seller and buyer have agreed on the price the contract is then submitted to the bank for approval. The approval is a lengthy process. Different banks have different guidelines and will take a certain percentage of what is owed to them.

Foreclosure

The real estate property in a bank foreclosure is now owned by the bank. The bank then markets the sale of the property through a real estate broker. Currently there are a great number of foreclosed opportunities in the market place, all kinds of units, basic, luxury, beachfront, etc. Generally banks will want to get the real estate out of their books ASAP since every month they own the real estate they have to pay for the expenses and taxes. Purchasing a foreclosure can be done in as quickly as 15 days and in most cases you can purchase real estate for under appraised value.

Regarding foreclosures one question that we get asked often is: What kind of properties get foreclosed? Do only ugly houses get foreclosed? The truth to that now is that all kinds of homes are getting foreclosed, not only ugly ones. We have been involved in transactions on which the property was worth over a million dollars. Right now there are properties on the foreclosure market anywhere from $30,000 to multiple millions of dollars.