Las Vegas
Short Sales - Las Vegas Foreclosures
We get this
question all the time - what is the difference between a
foreclosure and a short sale? And which is the better deal?
A foreclosure or
REO (which stands for Real Estate Owned) is a property that the
bank has already taken back through the foreclosure process. The
owner has moved out and the bank holds legal title to the
property. In some states the previous owner still has a
“redemption period” to get the home back from the bank. But
Las
Vegas foreclosures are final and the bank can turn around and
sell them right away. An offer on a foreclosure property can
take anywhere from one day to two weeks to be accepted by the
bank and usually 30 to 45 days from acceptance to close. Fannie
Mae foreclosures are among the best foreclosure deals on the
market.
A short sale or
pre-foreclosure, on the other hand, is where the owner owes more
money on the property than it is worth and is trying to sell it
for less than the amount owed. An offer to purchase may be
approved by the owner (who is not going to walk out with any
cash anyway), but the contract is still subject to final
approval by the bank (or banks if there is more than one
mortgage on the property). The bank has to agree to take less
than what they are owed. Once a bona fide offer is received, the
seller is required to write a hardship letter stating why they
should be eligible to do a short sale. They must also provide
bank statements, paycheck stubs, and a financial statement to
show that they cannot make the payments. In addition, the
seller’s real estate agent must provide a market analysis of the
most recent comparable sales to justify the selling price. The
bank will also send out their own appraiser some time during the
process to get an independent analysis done.
Just the
approval on a short sale can take anywhere from 60 to 120 days,
and sometimes even longer. Until the bank approves the sale, the
buyer is in limbo, not knowing whether they will actually be
able to buy the home. There is, unfortunately, no way to speed
up the process. The banks won’t even talk to the real estate
agents or sellers in the meantime to let them know what the
status of the approval is. Often the property goes to
foreclosure sale before an approval can be generated.
In either case,
don’t expect to have repairs made or receive a lot in buyer
concessions (closing costs paid by the seller). Most short sales
and foreclosures are sold “as is, where is.” Banks will only be
willing to do the minimum repairs to a property that will allow
it to be financed. (Missing flooring, missing stove or A/C,
etc.) On a short sale the seller does not have the money to make
repairs at all.
Lately we have seen many short sales on Las Vegas homes and
condos that have been foreclosed upon even though there was a
good offer on the table. The kicker is, after the foreclosure is
complete the bank often turns around and lists the property for
LESS than the offer that was tendered!
Though this
doesn’t seem to make any sense, there is actually a good
rationale behind the bank’s actions. If a bank approves a short
sale, they cannot write off the loss (the difference between the
mortgage owed and the actual sales price). With a drop of more
than 50% in the
Las Vegas real estate market, a home that was worth $300k might now only be worth
$150k. If the buyer got in with no money down originally, the
bank is facing a principal loss of $150k plus expenses and past
due interest payments.
But if the bank
forecloses on the property, in some cases they can write off 100% of the loss.
Now they can afford to sell that $150k home for $130k and still
come out ahead of the short sale scenario by taking the $150k+
write off on their taxes.
Either way, there are
great deals to be had, but a great deal is not necessarily
how much you
can “get off” the sales price. Many foreclosures and short sales
sell well above the listed price and are still great deals. A
great deal is determined by how much you pay in relation to the home’s
true value.
