One of the biggest questions many of my buyers have is what a short sale or bank owned home means in terms of the house and the process? Below I’ve summarized some of the biggest differences, and have also made it into in a PDF one-page format if you’d like to print it.
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Traditional Seller |
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What is it? |
Most often Traditional Sellers still occupy the home. The Seller is the home owner and they can afford to sell the property at the price listed in the MLS without approval by a 3rd party. Moving by CHOICE. |
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Condition of Property |
Usually home is maintained appropriately and may only need minor repairs/cosmetic updates. Utilities are current-water & heat have been kept on. |
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Disclosures & Warranties |
Seller is required by law to disclose defects in the property. Sellers will be able to educate Buyers on work done to the home & any prior problems/issues; frequency & how issue was resolved. Small claims court or arbitration are legal options Buyers may use to pursue Seller if they feel an issue was not properly disclosed. |
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City Inspections (if required) |
Seller will have any city required inspections completed per city code. Often Seller will repair major items found on the inspection prior to listing or will negotiate with the Buyer on responsibility of those repairs. Traditional Sellers are typically the most practical and flexible when it comes to inspection issues. |
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PA Response Timeline |
Listing agents can typically get an offer to a Seller & have their response back to the Buyer within hours or a day at most. |
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Financing Options |
Due to condition, most homes will meet FHA, VA & Conventional appraisal and underwriting guidelines. |
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Closing |
Sellers and Buyers attend closing together and sign all paperwork. Often a bonding moment over the transfer of home to new owners. |
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After Closing |
Some Sellers & Buyers exchange contact information in case there is a question about how something works in the home. If the Buyer feels there is a problem with the property, they contact their agent who will contact the Sellers agent to try to resolve issue. |
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Short Sale |
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What is it? |
Seller may or may not occupy property. They are facing a financial hardship (the house may or may not be in foreclosure) and have the home listed for sale at a price less than they can afford to accept. They are asking their lender(s) to agree to take less than the amount owed on the home as payment in full so they can sell the home. |
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Condition of Property |
Homes are often in a state of disrepair due to inability to pay for required maintenance/repairs. Homes are often vacant and show signs of distress, wear & tear or lack of care. There are of course short sale properties in “mint condition” but these are the exception. |
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Disclosures & Warranties |
Seller is required to disclose defects in the property, however may require the Buyer sign an “As-is” Addendum due to the fact they may have vacated the home months ago & are unsure of changes in condition. Disputes after closing may be harder to resolve as seller may have little to no financial assets to seek for damages. |
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City Inspections (if required) |
Seller likely does not have funds available to pay for city inspection, so many aren’t done until AFTER a Buyer has had their Purchase Agreement signed by the Bank (which could be months after offer was submitted). Sellers typically require Buyers assume responsibility for those issues & escrow 1.5x the cost of the repair at closing if required by Buyer’s lender or city code. |
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Purchase Agreement Response Timeline |
Listing agent needs to track down Seller, have them sign Purchase Agreement and then get it submitted to Seller’s mortgage company. Can be 3 weeks to 5 months before Seller’s mortgage company responds. |
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Financing Options |
Current condition may make FHA and VA mortgages harder to get due to tougher condition guidelines but many will still qualify. Conventional normally not a problem. |
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Closing |
Seller will often presign required short sale package from lender & send power of attorney to closing. Closing docs will need to be submitted to mortgage company & deficiency must be signed off on by mortgage company. Sometimes Seller does attend closing. |
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After Closing |
Sellers are gone-occasionally a delinquent utility bill will surface. Home may still have debris remaining and/or may not have all of the personal property as agreed upon & sometimes appliances go “missing”. |
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Foreclosed/Bank Owned/REO |
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What is it? |
Vacant home. The prior home owner lost the home through the foreclosure process or gave the keys back to the back in what’s called a “deed in lieu”. Seller is now the bank who filed the foreclosure action. The price listed on the MLS is a price the seller will accept, though it may require additional approvals. |
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Condition of Property |
Vacant properties-remaining personal property & garbage has been removed. Home is left in last known condition & has been winterized to prevent pipes from freezing/water damage & mold, though some foreclosures are damaged prior to the bank’s possession. |
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Disclosures & Warranties |
No disclosures/property history available. Buyers must sign “As-is” Addendum as part of Purchase Agreement releasing Seller/Bank from liability on non-disclosed issues. Seller/Bank would have no known prior knowledge of defects since they have not lived in the home-many Banks have not ever seen the property they are selling. |
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City Inspections (if required) |
City inspections usually completed as required by city code, however, Buyer is required to assume & escrow for the repairs. Many cities require Buyer to escrow 1.5x the cost of the item at closing. |
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Purchase Agreement Response Timeline |
Listing agents can get offers submitted to banks (during business hours) and Buyer usually gets a response within 24-72 hours. |
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Financing Options |
Some are in good condition but the majority have some issues that make FHA & VA financing difficult- each property must be evaluated separately. |
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Closing |
Seller/Bank will presign all docs and send them to title company for closing. They will require the final HUD-1 settlement statement to be sent to them 72 hours prior to closing for review-sometimes the Seller takes extra hours or days to sign and closing is delayed. |
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After Closing |
Home is de-winterized, home may or may not have all of the personal property/appliances as seen at the home prior to closing. Seller’s “As-Is” addendum covers Seller/bank in the event something goes missing prior to closing. |
