The difference of a short sale transaction and a bank foreclosure is a question I get asked every day by both buyers and sellers.  The difference is dramatic, and very misunderstood by most people.  The term "short sale" was not even on anyone's radar one year ago.  Now, 365 days later, it is part of every Realtor's nightmare.  And sadly, many homeowners as well.

The primary difference in the two is simple. In a short sale, the homeowner is still on title to the property, owes more than the home can sell for in the current market and most often the person on the title is still living in the home. With a bank foreclosed home, the bank is on title and is responsible for the maintenance of the home and ultimately what the property sells for in today's market. 

With a short sale, the property is listed with a Realtor, the value placed on the home is one that is determined by recent sales with a decline of 1-2% factored in when the listing is taken.  Then, the seller must notify the lender they are positioning the home for a short sale and fill out reams of paperwork, stop making payments and put on a lucky hat that a buyer chooses their property out of the hundreds or so available.  If that happens, the pile of paperwork continues with HUD statements, the offer and a letter detailing the situation to the appropriate lender.  And the waiting game begins.  Months can go by before a negotiator is assigned to the case, no one answers the phone or emails when you are hoping for a quick answer and still the seller and buyer wait.  Please know the seller is not receiving any proceeds, so any offer must be signed by the owner of record and they do not really care what it sells for at this point.  Most of the Bend offers end up never closing as the buyers get frustrated and make an offer on a different property and cancelling the original offer.  In short, (hah) most of the short sales in Central Oregon have such a big price spread of what is owed and what the offer is that 90% never close.  And this does not take into account if there are any seconds or line of credits attached to the property.  Those have to be addressed as well, and typically the outcome is not good.

The better of the options for buyer's searching out the best deals-and everyone is-are perhaps the properties that have now gone back to the lender.  The lender is now on title to the property, the seller has vacated the property and the process is now much faster because the lender makes the decision regarding the sales price, and we have a human to work with directly.  My recent successes in closing transactions are the bank-owned properties in almost record time.  Whereas, very few of the short sales ever close.

The downside of some of these properties are many are left in very poor condition, the yards show neglect, often there are no appliances and the homes are sold "AS IS" with no warranties or no help on a home inspection to fix repairs.  If anything seems too good to be true-it usually is.

Now the very best option is to find a seller who is realistic and understands in order to compete in this market, they need to price their home aggressively against the above two options.  These homes are in much better condition, you can negotiate with the seller about price, terms and condition-usually ask for and get a home warranty and typically, have repairs taken care of from a home inspection.  Is any of this worth extra money-I beleive it is.

Especially when no one knows when we have truly hit rock bottem until the prices start going up.  There are those rare mulitiple offers starting to happen on new listings and that is a good sign.  The seventy or so short sales contracts in place will result in many of those buyers moving their deposit money to a different home and hopefully one that can actually close. 

Now is a great time to purchase many of the properties, both bank-owned and seller value-priced as interest rates are at a historic low, and should remain so for quite sometime.  The FHA market for first time buyers with good credit is strong, as is money for the purchase of primary residences.  The scary part is as more people have reduced credit scores or who have no equity to move back into the market will be renters for who knows how many years to come.  Suze Orman's advice is to cut the credit cards up, pay off what you can and watch what you spend.  But don't stop spending all together, or the economy has no hope of improving.

Please call me with any questions, this is a large subject that has no easy answers.  Everyone knows someone going through this process and we all need to give them as much support as possible.

"No journey is too great if you know what you seek"  Unknown

All my best, Shelly