What's the difference between a Bank Owned Foreclosure and a Short Sale?

I recently had a client send me an email with the question below:

Hi Aaron,

Can you tell me what is the difference between a bank owned foreclosure and a short sale?

That is a great question. The number of Bank Owned Foreclosures and Short Sales are increasing in Orange County, especially in Anaheim. A bank owned foreclosure is sold in "as is" condition, but the process of the sale is very similar to a traditional sale by a seller who owns the property. You are allowed to negotiate a price and terms of the sale just like a traditional sale. The nice thing about purchasing the property with an agent is the fact that after the offer is made; I will speak with the bank and come to an agreement by phone before they put the counter offer on paper. If we agree to the terms, we will then have a couple of days to do a property inspection and decide if you really want to purchase the property in the present condition. The banks will rarely do any repairs, but at least you will have a couple of days to decide if you really want to go forward with the deal or not.

A bank owned foreclosure auction is more risky because you have no time to do a property inspection and you must put a larger than usual deposit up front (sometimes 5% or more) plus you have the pay the auction agency a commission (2% to 5%). This is something that you do not have to pay when you use a buyer's agent.

A short sale is a much longer process. It requires 3 to 4 weeks to get bank approval just to agree on the price, but after that it will become the same process as a traditional sale. The reason it takes longer is because the bank has to agree to take a loss on the sale and they need to evaluate whether it's to their advantage to take a $40,000 to $50,000 loss or just go into the foreclosure process (which ends up costing them around $40,000 to $50,000 anyway). The decision is based on how much the previous owners still owe on the property and how much the sales price will be.

I hope this answers your questions. Let me know if you have any other questions.

Sincerely,

Aaron Kelly - RE/MAX

www.homerealtymanual.com