Buying Short Sales Homes vs. REO Properties
Everyone has seen the late night infomercials about how easy it is to buy real estate from the bank and make a quick buck. The reality is that it is not as easy as they make it sound. There is definitely buying opportunities available but you need to understand how this process works. Learn everything you can so you are prepared. Sometimes there is confusion about what the different terms used to describe these properties are. So here is a BRIEF description.
SHORT SALE - when the home owner owes more than the house is worth and is in a hardship situation financially where a sale must happen (loss of job, divorce, etc.). The sales price for Short Sales is determined by the home owner’s agent and just because a seller WANTS to sell at a certain price does not mean the lender(s) will approve, and a hardship must be demonstrated and documented for the lender to even consider a Short Sale. Short Sale properties usually sell at asking price or higher. Because of many factors, in this market only 4 out of 10 Short Sales actually result in a transaction, the other 6 end up getting foreclosed on. Many times, people chasing Short Sale properties end up paying market value because they get into a biding war. Short Sales are not always the bargain you may think they will be.
FORECLOSURE – is the process that commences once a homeowner reaches a point where s/he cannot pay the mortgage and (normally) is behind 4 payments, a NOTICE OF DEFAULT (NOD) is filed by the lender. Often then owner already has the home on the market as a short sale. Foreclosure proceedings vary from state to state.
BANK REO - Real estate owned properties (also commonly called bank owned properties). If a foreclosure property does not sell, it may be auctioned off (e.g., a trustee’s sale here in AZ). If it is not bought then, the house becomes an REO that is “Real Estate Owned by the bank” and sold BY the bank on the open market. REO properties present the greatest buying opportunity.
Typically, when you make a offer to a bank on a REO property you can expect to receive a counter offer. Sometimes it will be much higher then expected, but banks do this to show investors that they are attempting to get top dollar for the property. If you really want to buy this home, expect that you will have to make a counter offer to the banks counter offer.
If they offer becomes accepted, you may experience a delay getting the final approval or even a delay getting to this point because the offer may need to be approved by someone else at the bank. Typically, it can take an extra 4-5 days for your offer to get final approval.
Condition of the property
The banks always want to sell the property in "as is" condition. Most of them will provide a Section 1 termite clearance but make sure you include this in your offer. In addition, make sure you get a good inspection of the property so you know exactly what you are buying. It is so important to have a good physical inspection of the property.
Be prepared to buy the property as is, or make a strong offer to get your repairs made. Banks, whether it’s a shorts sale or REO, will always push to sell the property "As Is" to avoid coming out of pocket with additional money. Section 1 termite clearance is typically still covered by the bank but you will have to work hard to additional items covered. Working with a solid Real Estate Pro from myREALpro can immensely improve your negotiations in your favor.
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