The Difference Between a Short Sale and a Foreclosure



This week, we are looking at the advantages of a short sale over a foreclosure from five different perspectives: the Sellers’, the Neighborhoods’, the Banks’, Prices and the Children. – The KCM Crew

Real estate professionals are handling an increasing number of distressed properties. Which is a better alternative for the seller – short sale or foreclosure? Here are the advantages of doing a short sale:

It allows a more dignified exit from the home.

In a foreclosure, an official eventually comes to the home and tells the occupants to leave – immediately. In a short sale, the seller knows the closing date and can prepare in advance for the move. In many cases, their neighbors, friends and family needn’t even know of their financial difficulties.

The seller could possibly avoid a deficiency judgment.

In almost all distressed sales, the bank can legally go after the seller for the difference between the loan amount and the selling price (known as a deficiency judgment). Most banks will release the seller from this obligation in a short sale process.

A short sale has less of a negative impact on their credit report.

Once a short sale is completed, the sellers begin to clean-up their credit report. The timeline can be much longer as a foreclosure proceeds through the process.

(For more on this go to: Short Sale vs. Foreclosure: A Short Sale Always Wins)

The seller can return to homeownership more quickly.

If a family allows the house to go to foreclosure, it may take 5-7 years to again qualify for a mortgage. In the case of a short sale, the timetable can be 2-4 years.

There is a ticking clock on tax relief.

There is currently legislation, the Mortgage Forgiveness Relief Act of 2007, ensuring that homeowners who received principal reductions or other forms of debt forgiveness on their primary residences do not have to pay taxes on the amount forgiven. This legislation is set to expire at the end of the year.

Harvard Study : 2012 Marks The Start Of “True Housing Market Recovery”

Newton Mass homes for sale.  Newton, MA. Buyers agent, Newton, MA. seller’s agent, Newton, MA. Realtor


Mortgage Rates are at historic All-Time Lows today!

Housing Market Showing Positive Signs

Harvard University’s Joint Center for Housing Studies says stabilizing home prices will boost single-family home construction throughout 2012.

The State of the Nation’s Housing 2012 report highlights several areas which suggest that U.S. housing markets are in recovery.

  • Sales of homes were up 5.2% in Q1 2012 as compared to Q1 2011
  • Sales of new construction homes were up 16.7% in Q1 2012 as compared to Q1 2011
  • Housing starts were up 16.6% in Q1 2012 as compared to Q1 2011.

The report also found that building permits for single-family homes were up by 16.9% between Q1 2011 and Q1 2012. Building permits can be a strong indicator of home construction levels.

Echo-Boom Generation Driving Future Sales

It’s not just raw housing data that’s improving. Buyer demographics look favorable for long-term housing trends, too.

An estimated 84.7 million young adults in the “Echo Boomer” generation, the oldest of whom turned 25 in 2010, are expected to enter the housing market within the next 20 years. The Harvard study states that, as housing markets improve, more “fence-sitting” young adults will convert from renters into first-time home buyers.

Obstacles remain for the housing market overall, including a backlog of foreclosed homes. However, the report’s conclusion that concludes that “2012 will mark the beginning of a true housing market recovery” is not at all far-fetched.

Today’s home buyers face a shrinking home supply but, with mortgage rates low and lots of low down payment options available, timing could be right to buy a home. If the Harvard study is right, by next year, home values — and mortgage rates — will be higher.



Making A Realistic Offer to a Resistant Seller

Newton, MA. Homes for Sale:

This article was written by Amy Hoak from Dow Jones, however, the title of the article is How to Make A “Lowball” Offer. I submit that a property that has been languishing on the market for a few months is an overpriced home. In reality you are submitting a market rate offer to an unrealistic seller. I can be reached at 617-921-6860 or margaretszerlip@gmail.com to discuss this very important distinction.

For some home sellers, it was a long summer without a home sale. That means this fall, some buyers — smelling the desperation — may be able to cut a better deal.

Top mistakes when making a low-ball offer on a home: If you’re thinking of making a low bid on a home, avoiding these mistakes will increase your chances of getting an accepted bid. Amy Hoak has details on Lunch Break.

“Sellers who had their homes on the market all summer are anxious to move on, especially before the holidays hit,” says Bill Golden, a real-estate agent with ReMax in Atlanta. The closer it gets to the holidays, the more anxious unsuccessful sellers can become, he says.

Other sellers will choose to let their listings expire and try again next year. They, too, may be willing to make a deal in order to sell their properties, even if they’re no longer actively trying to sell their place, says Patrick Carlisle, chief market analyst for Paragon Real Estate Group in San Francisco.

The key to making an aggressive “lowball” offer on a home is to start by finding properties that have languished on the market for a long time. The softer the market, the more likely the strategy will work, Mr. Carlisle says.

But buyers can get tripped up. Here are six things you need to do when making a lowball offer.

1. Understand the market

Before submitting an offer, your real-estate agent should do a full comparative market analysis of the property to determine what its fair market value is, Mr. Carlisle says.

For instance, it’s still a buyer’s market in the Richmond, Va., area, where Susan Stynes works as a real-estate agent for Long & Foster. Ms. Stynes says she wouldn’t hesitate to encourage a client to make an aggressive offer, after considering the time the property has been on the market and neighborhood comparables.

But in other markets a low offer won’t get you far, says Stephen G. Kliegerman, president of Halstead Property Development Marketing in New York.

2. Pick the right real-estate agent
[sjMW1009]Tim Goldman

Some real-estate agents caution buyers against making an offer that is so low it could offend the seller and halt the negotiation process.

But sometimes agents are too reluctant to make aggressive offers, Mr. Carlisle says. They may be more focused on completing a deal and collecting their commission, rather than making the best deal. Or their negotiation skills might not be up to par.

“If it’s an appealing, well-priced property that has five or six offers on it, well, going in 10% or 20% under asking isn’t going to get you anywhere,” he says. But on a property that has been overlooked by the market and doesn’t have multiple bidders, it often doesn’t hurt to go in low.

3. Back up your price

There’s an art to presenting an offer that’s substantially under the asking price. A low offer could start negotiations off on the wrong foot if you’re not careful, Mr. Golden says. The key is for you or your agent to explain the offer when presented.

“Sellers want to know why you’re coming in so low. Include recent [comparable sales in the area] or issues with the property that validate why your offer is so low,” he says. Don’t be too harsh with your criticism, however — that can also work against you, he adds.

4. Know what you’re willing to pay

Buyers these days have a strong motivation to get the best possible price on a property, especially if they believe that home values will fall even more, says Jay Butler, professor emeritus of real estate at the W. P. Carey School of Business at Arizona State University. Their biggest worry is often that people will say they overpaid, he says.

But sellers have limits, too, most often dictated by the amount of home equity they have, Mr. Butler says.

Before negotiations begin, it’s important for a buyer to decide what his walk-away price is, Mr. Carlisle says. “At some price point, the deal is no longer worth doing, no matter how great the property.”

While a buyer should know how high she is willing to go, don’t put limits in the first offer, Mr. Kliegerman says. You lose integrity if you say it’s your “best and final” offer, but then are willing to come up with a few thousand dollars more in order to buy the property.

5. Make a clean, easy offer

When you make a low bid, you want other elements of the offer to be attractive to the seller. And a deal that can close quickly often will have appeal.

Make sure there are as few contingencies as possible, Mr. Golden says. It’s best if buyers don’t have a home to sell in order to buy the one they’re bidding on, Ms. Stynes says.

Also, have your financials in order from the start. Loan qualification is more difficult these days, so it’s important to have a lender pre-approval letter, Mr. Carlisle says.

6. Be smart about a cash deal

Cash is king, but in the end, a seller often wants the most money for his home — regardless of if the buyer needs a mortgage or not. So don’t think making an all-cash bid will automatically mean an accepted offer.

If the seller is a bank because the property is a foreclosure, the institution may accept a lower offer from a cash buyer, as opposed to someone who needs a mortgage, Mr. Golden says. Banks often don’t want to deal with mortgage-related delays.

Newton Home Sales 3rd Quarter 2010 vs. 3rd Quarter 2009

Graeme Hick's batting average in English seaso...

Image via Wikipedia

What changed from 3rd quarter 2010 from same time period 2009?   Let’s take a look:


  • Number of Homes Sold:  200
  • Lowest Priced Home:  $195,000
  • Highest Priced Home:  $3,450,000
  • Median Price:  $751,750
  • Average Price: $872,280
  • Days on Market:  72
  • Listing Price to Sale Price Ratio:  93%


  • Number of Homes Sold: 147 down about 25% from 2009
  • Lowest Price Home:  $288,000
  • Highest Priced Home:  $3,550,000
  • Median Price:  $822,500  up about 10% from 2009
  • Average Price:  $948,083
  • Days on Market:  74
  • Listing Price to Original Sale Price Ratio:  93% (before price reductions)


$150K-199K  1 home     sold at 37% of original listing price of $528,000 (OLP original list price)

$300K-349K  2 homes  sold at 105% OLP

$350K-399K  4 homes  sold at 92% OLP

$400K-449K  9 homes sold at 96% OLP

$450K-$499K  7 homes sold at  95% OLP

$500K-599K  41 homes sold at 95% OLP

$600K-699K  20 homes sold at 94% OLP

$700K-799K-  27 homes sold at 95% OLP

$800-899K  17 homes sold at 94% OLP

$900K-999K  16 homes sold at 93% of asking price

$1000M-1.499M  41 homes sold at 92% of asking price

$1.500M-1.999M  9 homes sold at 90% of asking price

$2.000M-2.499M  3 homes sold at 87% of asking price

$3.000M-3.999M 2 homes sold at 70% asking price


$250K-299K  1 home sold at 89% of OLP

$300K-349K  1 home sold at 90% of OLP

$350K-399K  2 homes sold at 82% of OLP

$400K-449K  6 homes sold at 97% of OLP

$450K-499K  4 homes sold at 95% of OLP

$500K- 599K  14 homes sold at 93% of OLP   decrease of 27 homes from 2009 or 65% fewer

$600K-699K  17 homes sold at 97% of OLP  decrease of 3 homes

$700K-799K  25 homes sold at 95% of OLP decrease of 2 homes

$800K-899K  15 homes  sold at 94% of OLP  decrease of 2

$900K-999K  14 homes sold at 95% of OLP  decrease of 2 homes

$1000M-1.499M 31 homes sold at 91% of OLP   decrease of 10 homes  or 20% fewer

$1.500M-1.999M 12 homes sold at 93% of OLP increase of 3 homes

$2,000M-2.499M  2 homes sold at 94% of OLP decrease of 2 homes or 50%

$2.500M-2.999M 2 homes sold at 83% of OLP increase of 100%

$3.000M-3.999M 1 home sold at 95% of OLP

So what do these numbers mean?  The $500,000 to $600,000 was most probably a direct result of expiring tax credits, therefore a 65% drop in volume.  The very high-end and the low-end suffer from the most unrealistic sellers; hence a 70% OLP for the one house sold at $195,000 originally listed at $528,000, with 82 days on the market.  The  one high-end house averaged 12 days on the market, and sold for 95% of asking, ( realistic seller) while 2009 2 houses sold at 70% of original list price of $4,998,500 and sale price of $3,622,500 and stayed on the market for an average of 456 days.  I foresee a slight decrease in volume for the rest of 2010 but prices remaining steady.  Inventory is building, about 20% in the past month, I have also noticed an uptick in price changes, which will be necessary to get stagnant inventory moving.  In the meantime, we will wait and see whether patience rewards the buyer or the seller.  My money is on the buyer.

On another matter, I am starting to sound like a broken record, pricing matters and buyers should not be relying on the SELLER’S agent to buy a property.  The idea that you are going to receive a “discount” because you don’t have a broker is ludicrous.  The contract is between the seller and the real estate firm the agent works for, not the individual agent.  The agent cannot renegotiate the commission for his or her company.  Is there a little leeway– yes, but not enough to go in blind, and I am amazed at how naive some buyers continue to be.