The Washington DC area which includes Northern Virginia and Maryland, has many “distressed” properties listed for sale. Following is some terminology.

Short Sale:

When a home owner tries to sell their home for less than they owe and then asks the bank to forgive the remaining balance. The potential buyer has the protection of a special short sale addendum but there are a variety of variables that may affect the outcome.

• If the homeowner misses mortgage payments, they may go into foreclosure during the wait and that stops the sale from continuing.
• The owner hasn’t started a discussion with the bank and may not be in a position to sell short.
• The owner and listing agent may set the price of the home ridiculously low (for some unknown reason) which the bank would never be able to accept. The bank must perform a BPO and their decision to accept or counter will be based on those results. Even if a buyer writes a full price offer on the artificially low price the bank could counter at a more acceptable price.
• The bank may take months (and months) to give their answer and many buyers end up finding something else to buy during the unreasonably long wait.

On the plus side of the last point… if someone makes an offer and the process starts, you may be able to “jump into” their terms should they change their mind and buy something else. At some point an offer will be countered or approved. Jumping into a pre-approved short sale can result in a fairly normal purchase.

Foreclosure:

When a home owner misses about 3 mortgage payments, the bank starts foreclosing on the property. The homeowner loses ownership of the home but may stay in the home for months depending on the bank. By the time the bank lists the home it is vacant.

BPO:

Is a Brokers Price Opinion. It’s similar to a CMA but with a rigid structure as to the homes that can be used as comparable properties. There’s also a plus/minus aspect where value is added or subtracted based on differences.

“As Is”:

Short Sales and foreclosures are usually sold “As Is” meaning the homeowner or bank won’t fix or change anything. Buyers still have the opportunity to have a home inspection but it’s mostly for the peace of mind of knowing what they’re in for. If the home inspection turns up something huge, the buyer can withdraw from the contract unscathed.

Short Sale Addendum:

Is an addendum that sets all the deadlines outlined in the contract to start after bank approval instead of right after the home owner agrees to the terms. That enables the buyer to wait for a firm approval before spending money on an appraisal, a home inspection; a radon inspection and committing to financing that may not be final.

Highest and Best:

If there are several offers all potential buyers may be given the opportunity to rethink and revise their offer to be the highest and best possible for them in hopes of being the successful bidder. Not unlike a game of Poker, it allows the participants to “stay in the game” for a shot at the prize.

Short sales and foreclosures can offer incredible deals but they need to be evaluated with your agent on a case by case basis to determine the difficulty and probable outcome.