Wednesday, December 7, 2011

Short Sales (not so short) + REOs

Short sales - REOs (Real Estate Owned) - Foreclosures: all speak to distressed sales and what home sellers may be facing today.  The silver lining within the various stages of distressed property sales is the opportunity to walk out from being “under water” and regain positive financial footing.  An opportunity exists for both buyers and investors, as they are able to purchase property at a discounted price and reap the benefits of higher yield potential or sentimental bang-for-the-buck!
Deals and bargains are all about the price!  The main benefit of purchasing a property as a short sale, foreclosure or REO is one’s ability to get it at a discounted price from the market comparables.  The cons, however, are the following:

Short Sale cons:
-          Takes at least three months to close, depending on the lender
-          The sale may not even go through because foreclosure proceedings are imminent
-          Competition: prices rebound to comparable market sales
-          Buyer is left to pay any liens, property taxes and closing cost fees if Seller is not able

Foreclosure (at courthouse steps) cons:
-          Title insurance, which indemnifies a Buyer against any pre-existing liens or encumbrances attached to the property, usually always comes with the purchase of a home.  When buying at the courthouse steps, however, title insurance is not made available to the Buyer and you assume the risks of inheriting any defects in Title; such as, mortgage liens, mechanics liens and encumbrances. 
-          Must buy ALL CASH – forgo opportunity to finance and leverage banks at the onset
-          Competitive arena with many savvy investors present

REO cons:
-          Institutional owners and banks may not have all disclosures and material information on property
-          This is the final resting place for bank foreclosures that have been picked over by short sale purchases and auctions earlier in the foreclosure process.  So, quality is likely lackluster and heightened in distress
-          Bank may require you to obtain financing through them given they own the property, and may not offer most competitive interest rate

Though the aforementioned Cons may be disenchanting, purchasing a distressed property is still worth considering on a property-by-property basis.  At the end of the day, purchasing a home boils down to the emotional tie you may have to it, long-term goals, affordability and value proposition.