What Is the Difference Between Buying a Short Sale & Foreclosure?
Short sale and foreclosure listings can be real estate values for a buyer. But just because a property is a short sale or foreclosure does not mean it is a great deal. In both cases, the buyer should consider the current market value of the property, not its previous purchase price prior to the short sale or foreclosure, and the physical condition of the property.
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Short Sale
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A short sale normally occurs when a property owner is upside down in a home loan, owing more than what the property is worth. The property owner lists the property for less than the loan balance, and the property owner's lender or lenders participate in the transaction. The lender accepts, rejects or counters a buyer's offer, after the seller accepts the offer. While a short sale requires lender cooperation, a short sale listing does not guarantee the lender will actually accept the buyer's offer, even if the buyer offers the full listing price.
Foreclosure
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When purchasing property with a loan, the borrower typically pledges the property as collateral. If the borrower defaults, the lender can foreclose on the property. Foreclosure is a legal process enabling a lender to sell or confiscate the property to satisfy the debt. In a foreclosure listing, the lender or a party representing the lender's interests lists the property.
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Occupied
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When an owner is short selling a house, the lender typically expects the property owner to occupy and maintain the property until the close of escrow. The property owner conveying title to the buyer is responsible for any damages the seller inflicts on the property, and therefore is less likely to damage the house. In a foreclosure, the lender evicts the property owner, leaving the property vacant. A foreclosure is more apt to suffer damages from the previous owner or vandals.
Repairs
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Short sales and foreclosures are often listed "as-is," indicating the seller does not intend to make any repairs to the property prior to the close of escrow. This does not prevent the buyer from making a repair request after making an inspection. Depending on the terms of the purchase contract, a buyer might have the option of canceling the offer if the seller refuses to make the repair. In a short sale, the seller typically does not have the resources to make repairs, while the seller in a foreclosure normally does.
Conditions
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Since the listing party in a short sale is the property owner, and the property owner's primary motivation is to liquidate, the seller typically does not impose any additional conditions on buyers, other than the financial ability to purchase the property. In a foreclosure listing, the seller may exclude some potential buyers from making an offer, such as investors, real estate professionals or those who don't intend to use the property as their primary residence.
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