In the home sales market, three types of sales dominate: standard, short sale, and foreclosure. Each impacts buyers in different ways, and it is important to weigh the pros and cons as you begin your home search and know what you are up for in each case.
1. Standard Sale or Equity seller
The name implies it all. The standard sale is the most standard type of home sale. The seller maintains equity in the house and isn’t selling out of distress. While the downside to a standard sale is that you are likely to pay market value for the home, the advantages often outweigh the market value cost.
Usually, a standard sale seller places their home on the market in a good condition, often making upgrades in more competitive markets. You are negotiating directly with the seller so there may be wiggle room on price and room to negotiate repairs that may come up at home inspection.
This is also the easiest kind of sale to do if you will be financing the sale. With the house in good condition, the appraisal is likely to be received as is, with no repairs being required by the lender prior to closing. Easy breezy!
2. Short Sale
The short sale is considered to be a “distress” sale because the current owners are selling because of financial hardship- they cannot afford to stay in the home. It is called a short sale because the owner owes more on the house than it is worth and is therefore trying to sell short of what is owed. Short sales are also called pre-foreclosures. Often a short sale sells for below market value, which is part of its appeal.
However, when purchasing a short sale, three parties are involved: buyer, seller, and the mortgage holder. Adding a third party complicates the buying process because the buyer now needs approval for the sale from the third party. And this can often take a looong time!
Often a short sale is the longest process to closing, typically taking three to six months. As a buyer it can be a disheartening process.
On top of it being a long process, most short sale homes are not in good condition. Owners who have been under financial stress don’t take the time and money to maintain the house. They also do not have money to pay for repairs. A buyer of a short sale should expect to pay for and complete some deferred maintenance as well as make repairs on their new home after closing.
3. Foreclosure Sale
A foreclosure or REO (real estate owned) sale is a house already foreclosed upon and returned to the mortgage holder. In this sale, you work directly with the mortgage holder. Foreclosing upon a house because of the former owner’s inability to pay the mortgage makes it a “distress” sale also.
If choosing to purchase a home through foreclosure, you often get a great deal. However, the home is sold as is, making the home inspection even more important. Use your realtor to hire a thorough home inspector that will give you the full picture of all necessary repairs.
Ask yourself, will the cost of repairs outweigh the value of the deal? Foreclosure homes can be in really rough shape. And, if you are planning on financing the purchase, the mortgage will cover the cost of the home, but the repairs would need to be completed after closing with cash. This can be a sticking point for many buyers.
When you begin the process of searching for your next home, think through what matters to you most. Do you want to renovate and put your stamp on the home? Do you have the cash to complete these renovations? Is your budget tight? Or do you want to purchase a move-in-ready home because it is already the way you love it? Are you willing to deal with the long short sale wait and ups and downs?
It is important to know the facts about each type of sale and decide which one works best for you.