I was reading this great Wall street Journal article on “Are distressed homes worth it?” The common wisdom is that it is easier to buy a foreclosed home than a short sale home. This is true in that it is more likely that a foreclosed home will actually close and it is more likely that a short sale will not close. One telling statistic in the article says that no more than 20% of short sales are successful. I used to say 40% of short sales actually closed, but I now think 20% is right.
However, buys of foreclosed properties are getting more painful for the buyer. A partial list of what makes them hard(er):
1. Seller takes forever to respond to original offer.
2. It takes about two weeks after agreement to get a signed contract.
3. The seller’s attorney does not respond to any requests under the attorney approval or home inspection. They have a million files and will never call back.
4. The utilities are turned off. If you are not smart enough to extend the home inspection until the utilities are turned on by the seller (and all leaks–there will be many– are fixed) then you will be stuck repairing 20 leaks that spring in the walls when you turn on the water.
5. When you do an inspection, it’s unlikely you will get any credit for repairs. The sale is “as is” and the seller means it.
6. Sellers constantly give artificial deadlines. “If this doesn’t close tomorrow we are putting the house back on the market and keeping the earnest money.”
7. The seller may try to stick you with title insurance, transfer tax etc, or if you are buying a condo, they can force you to pay 6 months of the foreclosed owner’s condo dues.
8. No sellers representative will come to closing.
9. Once you are lucky enough to get to closing, it may take up to two days after closing to get a “seller signed HUD.” After the seller has imposed all kinds of phony and irrational deadlines, they will take forever to sign the final closing statement. You cannot move in until they do, so don’t have that moving van parked in the drive.
That being said, many buyers find that the appraisal of the foreclosed home is thousands more than they paid for the property, so they put up with this basically unpleasant exercise.