When buying your first home, you should always consider the “3 P’s of Purchasing a Home”. These include Property, Price and Process. The two that most people take into consideration are property and price. They spend endless hours looking for a property that fits their parameters for a home, as well as their budget. But the item that is often overlooked is process. So you should ask, “What is the process involved in purchasing this home?”
This mostly varies depending on what type of transaction you are considering. Specifically, is it a private seller, a bank-owned property, a HUD home, or a short-sale? Every transaction type can have different connotations, and therefore involves a different process.
A private seller is often the easiest to deal with, and ultimately close. In this transaction, because the seller has equity they will cash out through the transaction, they will be more amicable to working with the buyer to close in a timely fashion. They may also be more willing to make any repairs to the property required in order to get financing from the buyer’s lender.
Bank-owned and HUD properties may take a close second in manageable processes. A bank-owned property is one that was acquired through foreclosure. Negotiating price and getting a great deal is sometimes easier with these properties. This is because the asset manager that is ultimately making the final decision, doesn’t necessarily stand to benefit if the property sells for a bit more. They are often most concerned with accepting an offer from a buyer that has a high probability of obtaining financing and also wants to close as quickly as possible.
HUD homes (properties owned by the Federal Gov’t) are similar to bank-owned properties in that the asset manager handling the sale of the property also doesn’t necessarily have a tie to the total amount received for the property. They are most concerned with getting a sale, and closing quickly. The flip side of the coin with bank-owned and HUD properties, is it can sometimes take a week or two to find out if your offer was actually accepted. This is often due to the fact that the asset manager isn’t just handling the sale of one property, but sometimes hundreds of properties. The other thing to keep in mind is that these properties are almost always sold As-Is, which means that regardless of the condition of the property the seller (or asset manager) is usually unwilling to make any type of repairs to the property (even if it means your lender refuses to finance the home without the necessary repairs).
The last situation is a short-sale. This is an instance where the private seller still retains ownership of the property, but the underlying leinholder must give final approval of the price because the equity of the home is “short” the mortgage balance. In other words, there won’t be enough proceeds after the sale to pay the bank back in full, so they have to sign off on how much of a loss they are willing to take. This piece of the puzzle is what makes a short-sale hard to close, or in some instances even an uncloseable transaction. Again, the asset manager representing the bank is probably dealing with hundreds of properties, which is why it can take upwards of six months get a response from the bank. Also, it is completely possible that after waiting six months to get a response from the bank, that response can be, “No, we will not approve the sale at that price.”
Because of all the potential outcomes to these different scenarios, it is imperative to understand which process you are involved with and what the actual probability is that your transaction will actually close. If you’re buying your first home and want to make an informed decision, go to our Calendar/Reservations page and sign up for one of our FREE First Time Home Buyer workshops