As we have all heard more times than we can stand, the housing market is in a slump with foreclosures and short sales in plentiful supply.  The problem with this is that it floods the market with an excess number of homes that a limited number of buyers can qualify to buy. Combine this scenario with a very difficult mortgage environment where only the “A” type home buyer - good credit, low debt-to-income ratio, good income - can qualify for a mortgage and you have a double whammy.

Let’s pretend you qualify for a mortgage.  There are three types of home sales out there:

1. Foreclosures - the bank actually owns this property and someone at the bank can actually make a decision about whether or not to sell it to you based on the financial terms of the offer.
2. Short Sales - the bank doesn’t legally own the property and the Seller cannot sell the home for as much as he owes on the mortgage.  The Seller is “short”.  Sometimes the Seller is very short.  In all cases, the bank must approve the sale since they are agreeing to take a hit on the mortgage.  This is most often referred to as “Third Party Approval Required” in the listing description on real estate web sites.
3. Conventional or “Plain Vanilla” - this is the type of sale most people are think about when they think about buying or selling a home.

Why Plain Vanilla Is Best

Sure, you might be able to get some “good deals” with either the Bank Owned properties or the Short Sales but wither of those two scenarios you are buying the home in total “as is” condition without any repairs to be made by the Seller (in the case of a short sale) or the bank (in the case of a foreclosure).  You also have to have the patience of Job if you want to buy a short sale. Banks typically take from four to six months to work through the process of approving your offer and there is no guarantee they will approve it.

The conventional, “normal” or “plain vanilla” type sale is a whole different experience. Here’s why:

1. Most often the Seller will have equity in their home.  Thus, they have room to negotiate financial terms including concessions to pay Buyer closing costs.
2. They are most often willing to make repairs based on a home inspection depending on the scope and cost of the repairs.
3. They can make decisions quickly so you will know what the Seller is or is not willing to do within a short period of time.
4. Settlement can happen quickly. Depending on individual circumstances on both the Buyer side and Seller side the entire process can take as little as 30 days from the date an offer is accepted to the date everyone is sitting at the settlement table.

When A Deal Is Not A Deal

Sure. Some of the foreclosed properties really are “deals”. Most of them are not.  If you figure in the cost of repairs, the time spent dealing with the bank it make not be a nice as you would think.  Short sales are even worse because the time frame is much longer, there are the repair issues and, possibly, title issues with liens and such. Still, if you have patience and perseverance this might be a good way to go.

Just don’t get too crazy after watching a lot of midnight infomercials.  Sometimes “plain vanilla” can be just as sweet.

Today I went out with a Buyer client looking for condos near the University of MD. The criteria was pretty simple: cheap.  That meant lots of bank-owned condos and lots of short sales.

I’m hear to tell you it’s been a long time since I went out and looked at so many distressed properties. Some were in pretty good shape, one had the entire kitchen gutted - no appliances whatsoever or counters or cabinets…nothing but an empty room - one had  a bathroom with the ceiling in partial collapse. Most had filthy and/or torn carpet and were badly in need of a paint job.

All of them were being sold “as is”. No repairs. No concessions.  What you see is what you get.

It’s kind of sad, really. Both for the people who used to live in the condos (or are on the way out) and for whoever ends up buying them.