Distressed properties can be a great deal for a buyer. These transactions however often take a very different path than traditional home sales. For starters there are 2 primary types of distressed properties prevelent in today’s market: short sale and foreclosures/REO. In simple terms, a short sale is when a property owner owes more on a property than what it’s worth. If they can no longer afford to maintain the property, then asking the bank to “sell short” is sometimes the best option. That means that the bank is accepting a payoff that is less than what is owed on the property. A foreclosure/REO on the other hand is essentially a property that has already gone back to the bank. The bank controls the property at this point hence the term REO- real estate owned. Without getting into the multiple variations that each transaction can offer, we’ll cover the basics here: 

SHORT SALES

Ket Points:

• Make sure an experienced negotiator is involved. This can not only expedite the process but they often make or break whether or not the deal will even get done.
• The seller is still in control of the transaction. It seems odd, but its true. Both the bank and the seller will need to agree on mutually beneficial terms.
• Banks will not begin the short sale process until there is a written contract on the property. Verbal offers are not considered. 

Questions to Ask?

• Does the listing agent have short sale experience? Many agents are not familair with the process. An un-informed listing agent can cause significant delays.
• Is there a second mortgage or additional liens on the property? If so, make sure the negotiator is securing that payoff as well. It’s sometimes the case that a buyer (yes – I said buyer) will need to bring a “cash contribution” to closing to satisfy additional liens. 
• Has a foreclosure date been set? If so, you had better be able to realistically get the deal closed prior to that date. Otherwise, back to the bank it goes. That could mean it would be months again before any new information would be available.

FORECLOSURES

Key Points:

• These are bank owned and controlled. Most banks are not in the business of holding real estate. Nor do they want to be.
• Nearly every sale is AS-IS condition. This still means you can do a home inspection. You’re just not getting  a seller concession from items that are found to be defective.
• Even in today’s market, many have multiple offers. Be prepared to do what the listing agent asks of you. If the bank wants you to get pre-approved with their lender, then do so. This doesn’t mean that you have to use them, they just want to make sure a buyer is qualified.

Questions to Ask?

• Has their been any property damage subsequent to the bank taking control of the property? While most listing agents will not have much along the lines of a property history, they will often know what the case has been since th bank took control.
• Ask your lender if the property can be financed? Homes with signicant damage can not be financed traditionally.
• What is the banks timeframe on responding to an offer? This can often take some time so be prepared for a slow moving process.

All in all these types of transactions can be beneficial for buyers. You wont get the legal disclosures associated with a traditional sale; you’ll have to be flexible on your closing date as the process can take some time; and there’s a chance you’ll have to do some work since these properties come AS-IS. With that said, buyers that fit the mold can find a great deal!