Princeton Capital Blog

Buying Short Sales or Foreclosures

June 28th, 2012

There’s no question that negotiating the short sales or a foreclosure can be time-consuming and frustrating. It can take months. But if you’re patient and willing to do the work, your reward will be a great house at a bargain price.

Short sales

For a distressed property, you could be dealing with third parties, each with their own agenda and process rules.

On short sales, banks will price a home close to the market value, but they are often willing to take less to avoid a costly foreclosure. The average short sale in the past year has sold at14 percent off the list price, compared with a 7 percent discount for foreclosure and regular sales.

Dealing for a foreclosure

Because banks are eager to unload properties they own, they list the home at a price at which they think it will sell quickly. These properties are often bought for cash by investors. In California, 31 percent of recent deals were by cash, according to Money magazine.

In some cases, the bank that handles the foreclosure may not own the loan. During the real estate boom years, many loans were sold off to other investors. In that case, the bank who owns the property has to consider the amount investors who own the loan are willing to accept.

Wells Fargo short sale and foreclosure servicing department says, on loans insured by the Federal Housing Administration, lenders can accept no less than 88 percent of appraised fair market value in the first 30 days. That declines to 84 percent after 60 days.

How to make an offer

In deciding what to bid on a foreclosure or short sale, remember that banks aren’t interest in making several counteroffers, though they may come back to you once or twice. In weeks to come, you could resubmit the offer and it might be accepted.

Your initial bid should be 10 percent to 20 percent below the list price.

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