Short Sale or Bank Owned

Well in our market the majority of sales are either bank owned or short sales, and people often wonder which is a better deal. Well first off we have to differentiate between the two. Bank owned or what is often called REO( Real estate owned) is a home that is taken over by the bank via foreclosure by the previous owner.

A short sale is where the current owner is trying to sell the home for less than they owe, because they can no longer make payments on the house, or have some other form of financial hardship. Now that I have explained the major difference in these two, I will go into the pro's and cons of buying these types of properties. Ok, so you want to buy a REO, this is what you can expect. One the property is usually sold -as-is and the bank will not do any repairs unless it is a major safety issue, or the FHA or VA lender requires the repair be done in order to fund the loan. The price that it is offered has been predetermined by the bank after they have done an appraisal or BPO( Broker Price Opinion) and once they list it, they will not usually accept offers less than 5% of that price within the first 30 days, after 30 days they may drop the price, or accept lower offers within reason.

The good thing about REO is once the bank accepts your offer , you can usually close in 30-45 days just like a regular sale. Since REO property is much easier to deal with than a short sale typically, the houses on the market are much more competitive, and can get mutiple offers, sometimes over list price. Now a short sale on the other hand, is a little different. When a short sale is listed the price is determined by the seller , not the bank, and since they are upside down and are not making anything, the seller can list it at any price they want, and sometimes it is priced low to attract an offer.

Once the seller accepts your offer, then it goes to the bank for final approval. This can take 3 to 6 months to never. The bank will do an appraisal on the property and determine what they want and that may be different that what the seller agreed to. In some cases the bank may want a cash contribution from the seller to approve the short sale, and if the seller doesn't agree the bank may just foreclose, and your offer is cancelled. On the other hand, if a buyer is willing to stick it out and wait the short sale out, he may get a good deal, as there is not as much competition on them compared with REOS, and sometimes the bank will take 5-10% less than market to sell it short rather than losing more money if they let it go to foreclosure.

A short sale is also sold as-is as the seller is not supposed to have any extra income to fix the place, or why would they be short selling in the first place. One advantage though about a short sale is you may find a house where the owner is keeping it up during the whole transaction, with pride of ownership,so you may get a property in great shape, and the seller may also provide property disclosures, whereas an REO wont provide them. Bottom line if you want a quick close with less headaches go after an REO. if you want a specific property, in better shape, and you are not in a hurry , then you may want to gamble on a short sale.