Short Sales, Part 1: Taking Advantage of the Buyer's Market

What is a short sale?

Pre-Foreclosures, also known as short sales, occur when the selling price of the home minus all closing costs amounts to less than the total loan amount (the first and if second mortgages combined). This differs from foreclosures which is when a buyer fails to pay his or her mortgage for a period of time, typically 6 months, and the bank takes ownership of the property making the house a Real Estate Owned or REO.

For example, an owner purchased a home in the real estate boom for $500,000 with 0% down with an interest only loan. He realizes that he can no longer afford the home and decides to sell it. The home, in today's market, is now worth $470,000. After closings costs, his net cash might amount to $450,000, not enough to repay the loan of $500,000. In a desperate attempt to sell the home before foreclosure, he lists the home at $450,000 and hopes for multiple offers.

Why buy short sales over foreclosures?

1. All Cash
To purchase a foreclosure property at a trustee sale, an owner has to pay with cash. Buyers bidding at these sales carry cashiers checks to the auction and pay on the spot. Most buyers looking to purchase a home need a mortgage and are unable to purchase with all cash.

2. Less Competition
With so many homes on the market, finding the short sales among them requires some work and patience. That's why when it comes to short sales, INFORMATION IS KEY. Currently in the areas I work, Arcadia, South Pasadena, Pasadena, San Marino, Temple City, and surrounding areas, there are 68 homes that qualify as short sales. While you can find short sales on local real estate websites, the best way to search for homes, for example Arcadia homes for sale that qualify as a short sale, is to speak with a knowledgeable real estate agent who specializes in the local area you wish to purchase in. A good agent will provide you with valuable information regarding the short sales in the area and will give you a competitive advantage over other buyers in the area.

3. Negotiations
The nature of a foreclosure auction is to start low and have bidders bid the price up. If enough bidders compete over the home, the final purchase price might end up higher than expected. With short sales, buyers have the opportunity to negotiate the final price of the home.

Some Great Buys

Below are some great, pre-foreclosure buys. Please call my direct line at (626) 203-1396 or email me at mark@markcheng.net for more information.



Arcadia - Temple City Schools, 3 bedroom, 2 bathroom, 2000+ sqft living area, Moderate-Good condition, $650,000








Temple City - El Monte Schools, 4 bedroom, 2 bathroom, 1700+ sqft living area, Moderate-Good Condition, $540,000








Continued at Short Sales, Part 2: Reasons to Work with a Short Sale Expert

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