Monday, 14 January 2019

Bargain shopping for a home is a little like bargain-shopping for anything else—you might have to work harder, scour the inventory a little longer and jump through some hoops, but in the end, you can net some significant savings.

Two ways you can pay less than the going rate on a property are by buying a short sale and by buying a foreclosure.

Though not as prevalent as they were during the housing crisis several years ago, these are still options for some buyers. You should also expect to wait longer for approvals; for example, the National Association of Realtors reports that in March 2018, short sales were on the market the longest at a median of 165 days, foreclosures sold in 56 days and other homes without mortgage issues took 51 days. Pursuing a short sale or foreclosed home is not an exercise a first time home buyer should tackle alone. Go with a pro, says BBVA Senior Vice President Viola Solomon, who works in the Community Lending Mortgage division.

"From a lender's perspective, I would recommend the home buyer consult an experienced real estate professional who specializes in foreclosures and short sales. I would also recommend extensive research on the property and the neighborhood. That's important for any purchase."

Here's an explanation of these options:

Short sales

  • How they work: A short sale is an agreement among a lender, a seller and a buyer to sell a property for less than is owed on it. Some owners try to take this step before damaging their credit through a foreclosure.
  • Benefits: You might be able to negotiate a steep discount; short sale homes are usually in better shape than foreclosed homes.
  • Drawbacks: The process to buy such a home is often drawn out. You also are unlikely to have any negotiating power to address repairs or issues an inspection finds.


  • How they work: When a homeowner defaults on his or her mortgage, the note holder, usually a bank, repossesses the property and tries to resell it as swiftly as possible.
  • Benefits: With a deep discount, you may be able to use the savings to fix any issues or bring the property up to your standards—especially if there was damage from previous residents. Banks are also eager to close these sales and get them off the books.
  • Drawbacks: There may be issues with evicting the residents, which can prolong the closing, and sometimes, there's damage to the home due to neglect (and in some cases, angry residents destroy much of the home to make it worth less). There's also less scrutiny with an inspection, and the property may have undisclosed damage or structural issues—you're getting the place “as is."

Buyers should be hyper vigilant of the specific implications of buying foreclosed and short-sale properties. The real estate site Zillow offers these tips from real estate expert Brendan DeSimone about minimizing risks:

  • Pull permits associated with the property to see if anything “out of the ordinary" has been done, or was planned.
  • Get a thorough inspection.
  • Ask neighbors if they know about any of the home's issues.
  • If there were previous attempts to sell the home, there may be recent inspection reports available—ask your agent to work with the seller's current or previous agent to find them.

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