Today there are many more short sales and foreclosures on the market and as a buyer it is important to understand what exactly each of these terms mean.
A “short sale” is a situation in which the seller owes more on the home than it is worth, and does not have the funds to come up with the difference at closing. In North Carolina, the seller must disclose that it is a short sale, and when an offer is made, both buyer and seller must sign a “Short Sale Addendum”. Once an offer is accepted by the seller, the listing agent submits it to the seller’s lender for approval. In rare circumstances this approval can happen quickly, but most often it takes several months, and even then the answer might be “no”. So it is possible to get a good deal on a short sale, but the lower the offer, the less chance that the lender will approve it, because the bank wants to recover as much of their money as possible. If you want certainty about when (or if) you will be able to actually occupy the property, setting your heart on a short sale can be extremely frustrating. The listing agent will try to keep you waiting by giving you hopeful updates, but oftentimes the process drags on indefinitely.
My advice is to make your offer on the short sale property, knowing the addendum allows you to withdraw it at any time before it is accepted, and keep looking for another property. If your original offer gets accepted, you can celebrate. If you find a better property in the meantime, cancel your offer on the short sale property and buy the new one instead.
If a homeowner stops making mortgage payments, the bank will eventually foreclose on the property, taking ownership and listing it for sale with a real estate agent. At the beginning, the bank will price the property high, hoping to recover the amount owed. Then the bank will drop the price substantially every few months until it sells. The strategy is to understand the value of the property (see below) and make offers at or below that value regardless of the current list price. The bank will either accept the offer or say “no” (they rarely counter). If they say “no”, make another offer. Recently we submitted a $760,000 offer on a home listed at $850,000. The bank said “no”. We made another offer at $761,000, and the bank accepted it. You just need to get lucky by making the offer at the right time, when the bank has just reduced the list price or is about to. Since you do not know when that will be, just keep making offers.