Every buyer wants a deal right now and in a down market this should be expected! Deals can most definitely be had, often in the form of a short sale purchase or a foreclosure. Buying a pre-foreclosure or a foreclosure can be very different, both from "normal" sale and from each other.

Pre-Foreclosure (often a short sale)

In this scenario the seller still owns the house but is behind on their mortgage and the lender has begun foreclosure action. Normally for a short sale the owner owes more to the lender than a buyer is willing to pay for it so they have to have a short sale approved. It is a "short sale" because the lender would have to agree to accept less than what is owed in order for the sale to close. In most cases due to the pending foreclosure judgment, there is a time factor as the owners need to submit a short sale package to the lender before they foreclose on the property.

Often the owner is still living in the property, which for some buyers, can make it a bit uncomfortable. They may feel as if they are profiting off of someones misfortune. However the complete opposite is true; the main reason an owner is putting property up for short sale is because they hope to avoid foreclosure - therefore if a short sale transaction goes through it is a complete win-win for both buyer and seller. The buyer gets a great deal on the property and the owner gets to avoid foreclosure and all of its negative drawbacks.

Since the owners are often still in the home it is likely to be better maintained than a foreclosure and almost always needing less repair work then a foreclosure.

Lenders are often letting short sale homes go from 10-20% less than their current market value. They do not base their decision on the original purchase price of the home or on the balance of the loan(s), but on what they would be able to sell the home for should they foreclose on it. It is a business decision for them if they want to take a loss by letting the seller sell it for less or if they want to foreclose and try and sell it themselves.

The downside as many know to buying a short sales take a long time to negotiate. A typical time-frame would be 4-8 weeks from the offer's submission before you hear back from the bank and another 4-8 weeks to negotiate back and forth with the bank and then another 4-8 weeks to close. So a short sale could easily take 3-6 months from start to finish, which is a long time to stay under contract especially for such a major purchase.

Short sales are great for people who have patience, do not get too emotionally tied up in the deal and might not want to deal with repair work in their new property. With a short sale you can often find the BEST deals in real estate since the owners - not the bank - get to choose which offer they submit to the bank and since the owners don't see a dime of the profits they might not always choose the highest offer but let other factors such as solid financing, a buyer that is committed to wait for months for a response from the bank, or even just someone they like to be the deciding reason in which offer they accept.

REO Foreclosures (bank owned properties that have already been foreclosed on by the lenders)

In this scenario, the lender has already foreclosed on the house and taken it back and put it back on the market. The foreclosed house will be vacant and possibly in need or repair work since the property has been vacant. It might also need new fixtures and may even have been vandalized. This eliminates a certain number of buyers due to the conditions the property they are buying must be in for a bank to loan on it.

Foreclosures are often sold at a similar discount to a short sale and you normally receive an answer quickly (even in a day or two), however due to the popularity of foreclosures it is not uncommon for the bank to receive multiple offers on the property within the first week of its listing and since the bank gets to choose the offer they want to accept - the sales price is often higher then the listing price.

Foreclosures are great for people with larger down payments so the condition of the home is less important to the new buyer's lender and for people who have the funds to make the needed repairs. They are also better for people who have little time or patience. Since there is no owner involved in the sale other than the bank that owns it, there is no "owner pride" involved in the deal either, it's just straight business.