Buying a Short Sale vs. a Foreclosed Property in Chicagoland

Although the real estate market is improving and, according to housing statistics gathered by the Illinois Association of Realtors, home prices have been increasing steadily since 2012, the sales of homes have not risen, mostly because of tightened credit standards and less available inventory. Nevertheless, the state remains one of the top five states in the nation with the highest foreclosure rates, as well as high rates of short sales. Buyers looking for a deal may be inclined to purchase a foreclosed home, in which the lender has retained possession of the home by way of court action as a result of the owner’s failure to pay the mortgage, or a short sale home, which is a property that is listed for sale at a price lower than what the borrower actually owes in order to avoid the foreclosure process. Before looking for a property, a buyer should first understand the benefits, disadvantages and differences in purchasing a short sale versus a foreclosed home.

Short Sale Homes

Short sale homes are properties that have yet to undergo the foreclosure process and, as such, tend to be in better condition than their foreclosed counterparts. The owner of a short sale home still occupies the property – unless it is rented out to tenants who are still living on the premises – and defects that may exist in a foreclosed home are not present because often the utilities are still connected, the landscaping has been maintained, and the home is still habitable. Just like foreclosures, the price of a short sale is lower than a non-distressed property and the lender selling the home may offer favorable closing options because avoiding the foreclosure process eliminates time, expenses and gets the liability off the bank’s books. Timing, however, is a disadvantage to purchasing a short sale, as they take much longer to close than other types of real estate transactions. That being said, buyers may avail themselves of the federal Home Affordable Foreclosure Alternatives (HAFA) program, which facilitates the lengthy process by streamlining and simplifying the short sale process. Another drawback of a short sale is that every entity that has an interest in the property must agree to the sales price – in other words, if the home has been mortgaged two or three times, all lenders must agree on the terms of the transaction as they have the ability to block the sale.

Foreclosed Homes

According to an article in the Chicago Tribune, approximately 12,671 Illinois homes received a foreclosure filing in the spring of this year. Benefits of purchasing a foreclosed home include a lower purchase price and less closing costs than when buying a non-distressed home. On average foreclosed homes sell for 30 percent less than non-distressed, move-in ready homes. In a foreclosure sale buyers, can often negotiate closing costs and, depending on the financing terms, the home can be rented out or lived in by the property owner. Also, unlike short sales, the time frame to close a foreclosed home can be fairly quick as banks are eager to take the liability off of their books. Disadvantages of buying a foreclosed property include difficulty finding one in an ideal neighborhood as well as the investment and time needed to repair the home. Foreclosed homes are often located in less desirable neighborhoods that are full of abandoned homes and, as such, property values will be low and likely not rise in the immediate future.  Although rare, wealthier neighborhoods may have a handful of foreclosed homes up for sale; if this is the case, buyers must be prepared to outbid any other interested purchasers. Additionally, foreclosed homes are often damaged and may have deficiencies including moldy walls, damaged or missing appliances, destroyed flooring and plumbing or electrical defects, to name a few.  Assistance is available, however, and some buyers may qualify for federal loans to repair a distressed home under the FHA 203k program.

Contact a Chicagoland Real Estate Attorney

The factors to consider when deciding whether or not to purchase a distressed property can be complicated. You don’t have to navigate this alone. Contact an Illinois real estate attorney today if you are considering purchasing or selling a property. The Law Offices of Gilbert C. Schumm has more than 30 years of experience with real estate transactions of all kinds and serves residents in the communities of Mt. Prospect, Schaumburg, Arlington Heights, Rolling Meadows and Roselle. Call (847) 559-9109 today to schedule your initial consultation.