VOL. 128 | NO. 61 | Thursday, March 28, 2013
Rays of Wisdom
Dana and Ray Brandon
Are Foreclosures or Short Sales Worth It?
RAY and DANA BRANDON
Ray’s Take This is in many ways a fantastic time to be looking for a new home. In addition to historically low mortgage rates, there are a lot of distressed properties on the market – homes for sale as foreclosures or short sells. There are plenty of bargains to be had, but also plenty of risks and financial pitfalls along the way.
A foreclosure is usually unoccupied and owned by the bank that holds the mortgage. Short sales are usually still occupied. In this case the bank has agreed to let the owner sell the house for less than the amount owed since the owner can’t make the monthly payments. Foreclosure sales can happen quickly, but short sells may take months to finalize.
If you are thinking about purchasing a distressed property, the process is different from typical home sales. Get pre-approved for your mortgage, as the really good deals tend to move quickly. You also need to have a solid grasp on what nearby comparable homes are selling for to recognize a good price.
Take the time to develop a relationship with a real estate agent that is working on behalf of a bank. These agents specialize in foreclosures and can sometimes provide you with information about new homes in foreclosure as soon as they occur. The biggest thing to keep in mind when considering distressed properties is that they are sold “as is.” You won’t be able to renegotiate the price to cover needed repairs. With distressed homes, you are responsible.
Remember, your new dream home is someone else’s broken dream, and some people take their misfortune out on the house they are losing. There could be costly repairs that aren’t readily visible. You need to be extremely careful with inspections and have extra financial resources on hand to cover the unexpected.
Buying a distressed home could be a dream or a nightmare – the difference depends on whether you do your homework.
Dana’s Take Buying a distressed home could put a lot of stress on you, too. With short sales you could wait months to learn if your offer is accepted. When a foreclosure is a particularly good deal, you could find yourself competing with other buyers, which will probably drive the price up. In either situation, you’re responsible for any repairs the home may need.
Before you venture down this path, educate yourself. That means looking at all the negatives just as hard as at the positives. If you’re a couple, make sure you both understand what you are getting into and agree on things like the price range and the degree of renovations and repairs you can handle.
The better you prepare, the readier you will be for the inevitable setbacks and frustrations. It could make all the difference to your success.
Ray Brandon is a certified financial planner and CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a licensed clinical social worker.