Everyone has heard the real estate terms, short sale and foreclosure. Often people confuse the two types of transactions, even though they are very different. Whatever your understanding is of short sales and foreclosures, it is important to know the following basic concepts for both of them.
Short sale
A short sale is a transaction on a property where the seller is typically having some kind of financial hardship. What makes short sales very different from any other type of listing is the seller must work with the lender to get an approval before they can sell the property. The reason for this is the lender usually takes a financial loss on the property, and therefore needs to approve it.
The usual process for a short sale is a seller lists the property with a Realtor. After an offer is received and accepted by the seller, the offer is then submitted to the lender for an approval. At this point, the seller and the buyer must wait for the lender’s response, which can take six months or more. This is one of the biggest challenges to a short sale. Even after the waiting period, there is no guarantee that you will get the lender’s approval on the sale.
Efforts have been made in the last year to streamline the short sale process and some progress has been made. But still, short sales typically take a long time, with no assurance that a buyer will get the property. In fact, after the seller has accepted the offer and they are waiting for the lender response, many buyers wind up finding another property that they are interested in and do not pursue the short sale.
Foreclosure
A foreclosure is a transaction where a property has actually been taken back by the lender and is owned by them. For the most part, when a foreclosure or a bank-owned property goes on the market, the process is just like a regular listing. The typical first step to selling a foreclosed property is that it gets listed and put on the market by a listing agent. Then the seller, who is the lender, accepts an offer and opens escrow.
There is no long waiting period for the lender to accept an offer. Sometimes the banks may take several days or even a week to accept an offer, but not several months like short sales.
After the offer is accepted by the bank in writing and escrow is opened, the rest of the steps are like a typical sales transaction. However, the sellers of foreclosed properties are exempt from providing buyers with some of the customary disclosures.
Trent St. Louis is a licensed Real Estate Agent and a member of the National, California and San Diego Associations of Realtors. You can reach Trent at The Metropolitan Group at 619-300-1621 or at SpecialAgentTrent@gmail.com CADRE#01273643.
