As a buyer in today’s market, you’re bound to see numerous short sales and foreclosure properties. Deciding on buying a short sale vs. foreclosure can be a difficult decision.

On one hand, a foreclosure is quicker, if the bank accepts your offer you have almost a 100% chance of closing. On the other hand they may need a lot more work to be livable. A short sale can take ages to close, but they usually are in much better shape compared to a foreclosure. In a declining market the home may be worth less tahn your original offer. Also only about 60% or less actually close escrow.

So the question is, should you buy a foreclosure or a short sale? In my opinion, you should understand the short sale process as a buyer first. A foreclosure is basically the same as buying a normal sale, except it’s owned by a bank rather than the homeowner. A short sale is still owned by the homeowner, but you have to negotiate with the bank. To help you understand that process, I have outlined a few things you need to know as a buyer:

The initial short sale process is the same as buying any other listing. Interested buyers negotiate with the seller/owner of the home before their offer is submitted to the lender for approval. In our current market there is likely multiple offers as many agents price them low to entice offers. The seller will choose the most suitable offer from the potential buyers and negotiate further until they come into an agreement.

The seller would then submit their short sale package with offer included to the lender. This is where things slow down. There are literally dozens of short sale programs and they very bank to bank. The are different for Fannie, Freddy, FHA, VA, and HUD insured homes. All requiring a different set of forms. Add to this the different experience levels of the listing agents. The lender would then counter, approve, or reject the offer, depending on the debt owned by the seller, the mortgage investors, and the offer given by the potential buyer. This process can take weeks to months depending on the banks current workload and time frame it takes to track down the holders of the mortgage not.

Pros and cons of buying short sale properties

• Advantages – There was a time when the main advantage for buying a short sale was price. Short sales are usually priced below market value to get an offer submitted to the bank, banks (were) happy to get some sort of payment instead of foreclosing on the home. Now the price you get depends on the amount of offers on the home and current market conditions in the area. Banks have typically down 3 BPO's (Broker Price Opinions) so a below market value price isn’t guaranteed. Also, as stated above, a short sale is usually in better condition compared to foreclosures.

• Disadvantages – On the other hand, closing a short sale deal can be tricky as the seller doesn’t have the final say. Short sales can take months to close, if they ever close at all. Many Realtor’s put the numbers around 40 to 60 percent of short sales listed that are finalized. It’s also extremely frustrating dealing with the big banks. It’s like pulling teeth trying to get an answer from some lenders, and if you don’t have the patience to wait for them to respond, a short sale may not be the right choice for you.

Tips for buying a short sale

• Hire A Great Agent – If you’re interested in buying a home listed as a short sale, the first thing to do is to hire an experienced real estate agent. A good real estate agent is the only chance you have at a successful closing. In-experience and laziness will kill your sale fast. Do your homework when choosing an agent, or you won’t get the deal done. Myseld and my licensed short sale assistan are both CDPEs Certified Distressed Property Experts, we know both sides of the process very well. We list short sale properties as well which gives us a clear insight into the process from the buyers perspective.

• Make A Reasonable Offer – When making an offer on a short sale, don’t think you can get a steal just because someone online told you that you could. Low ball offers are almost always countered and usually rejected, making the time frame for closure longer. Also, keep in mind, if the short sale is priced well, you’ll be competing with other buyers. If you really like the house, you’re going to have to pay a reasonable price. Be prepared to pay market value.

• Communication Is Key – It’s very important that you maintain good communication with your agent and the listing agent. A good buyers agent will continue to contact the sellers agent and give you updates as they come in. If you haven’t heard from your agent after a couple weeks, be sure to check in with them and see if they have any news. Short sales are a timely process, so don’t let your agent drop the ball.

• Be Prepared To Wait – If your looking to buy a home quickly, short sales are not your cup of tea. The average time-frame from offer to close on a short sale is between 3 to 6 months. Do you have that much time to wait to purchase? If not, don’t even think about submitting an offer. You’ll be wasting your time and your agents, and you could potentially lose out on another home that isn’t a short sale.