Home Buying in Eastside>Question Details

Eileen, Home Buyer in 90805

What is the difference between a short sale, regular sale, and REO?

Asked by Eileen, 90805 Fri Jan 27, 2012

We are 1st time home buyers. we want to buy a house in the north long beach 90805 area. so far I have been looking online and almost ALL of the houses are SHORT sales!!! Or have a "HOLD" on them...We are starting to get discuraged... people have been telling us that SHORT sales arent any good..??!!! we want to find a home... we like... make an offer and have the seller pay closing costs. can you do all that with a SHORT SALE, or REO??? We are so confussed... please HELP! THANK YOU

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A short sale is when the homeowner owes more on their mortgage than the home is worth. They are asking their bank to forgive a portion of the debt. In return, the bank has to approve the sale. The process of approval has improved but it can take months before getting bank approval - assuming the bank WILL approve. If you have a definite timeline as to when you need to move (renting and lease is coming up) I would avoid short sales as bank approval times are very erratic at best.

REO homes are homes which have gone in to foreclosure and are now owned by a bank. Often there are some great buys (and with Fannie Mae and Freddie Mac) some great loan incentives available for buyers who are planning on living in the home. REO homes are sometimes not in the best shape and may require repairs due to years of deferred maintenance. REO homes are sold 'as is', so any repairs found in inspection are almost always YOUR problem.

A traditional sale may not offer you the best deal (like an REO) but there is often less work involved as most sellers today are aware their home has to be 'move in ready'. If you want a good deal on a traditional sale, concentrate on 'estate' sale homes. These are homes where the owner has either passed on or have gone into a nursing home. Often they might be a bit dated, but that can be remedied for low cost. You might find these advertised as 'Grandma houses' which is code word for 'needs some paint, carpet, etc'.
2 votes Thank Flag Link Fri Jan 27, 2012
The basic difference is who owns them:
A "regular" traditional sale is between you and the Owner of the house. They have equity in it, and are not "distressed". They can set the selling price and call the shots.
A "Shortsale" is similar, but the Seller is distressed; they owe more on the house than it is worth. So they have to turn to the Bank for help: They ask the Bank to accept their "Hardship" and if the Bank agrees, you will need to get the Bank's approval. The Bank will be accepting less that the people owe on it. It probably will take a long time to get the approval and do the paperwork. Sometimes this is a "deal breaker". If you be patient, this could be a good way to get a house cheaply. But you cannot change your mind in the middle of the stream.
An "REO" is Real Estate Owned; this is property that has been through Foreclosure and now is owned by the Bank. You will deal with the Bank. The Bank sells the property As-IS, with no repairs. Usually, to get the bank to accept your closing costs, you will need to inflate the offer to cover them.

To buy a Shortsale or REO you will need a Realtor to help and guide you.

Good luck and may God bless
2 votes Thank Flag Link Fri Jan 27, 2012
A regular sale is when the current owner has equity and can sell it to you without approval by their bank. A short sale is necessary when the owner is "upside-down" on their mortgage (or has negative equity). In that case, they will need the approval of their lender (or lenders) in order to complete the sale. Sometimes, the process of gaining approval can take a long time -- or be denied altogether. It can be frustrating to purchase a short sale, which is probably why some people are telling you they aren't any good. Actually, there are some good deals out there on short sales, but you need to proceed cautiously. An REO (otherwise known as a foreclosure or bank-owned property) is owned by a bank. Some of the REOs are short sales that didn't work.

Regarding having the seller pay closing costs -- it's possible to have the seller pay for some or all of your closing costs on a short sale, regular sale, or REO -- depending on the offer and the situation.

I can understand why you might be discouraged. As you've noted, many listings in North Long Beach are short sales and the current status online is often out of date, which can be frustrating. I'd recommend finding a qualified, experienced Realtor who can help you identify a property that will meet your needs and price range and is actually available.

I hold a CDPE (Pre-Foreclosure Specialist Certification) and PSC (Pre-Foreclosure Specialist Certification) and have helped many buyers and sellers successfully close escrows. If you'd like more information or would like to schedule a meeting, please feel free to call 562-896-2456 or email me at Shannon@ShowMeHome.com. We'd be happy to help you!
Web Reference: http://www.ShowMeHome.com
1 vote Thank Flag Link Fri Jan 27, 2012
Hi there. Your frustration is not uncommon! I know that doesn't help much but at least you are not alone. The other 2 answers so far are good explanations.

My quick and dirty answer would be this--

A regular sale -- GOLD in this market. If you find one at a price you can deal with and that you like - write a GOOD offer, and quickly.

A short sale -- there is not enough equity to cover the seller's loan that needs to be paid off from when they purchased, or refinanced. This means the value of the home today is less than what they bought it for. This process is getting streamlined - but what you are hearing is true. You could end up waiting months for an answer because you are not *really* trying to buy the house from the seller... you're trying to get the seller's bank to take less money than they are truly owed ... and they don't want to agree to that easily.

An reo - real estate owned - is a home that a bank has already forclosed upon. A bank can price more aggressively so these seem like better deals but there are MANY factors that can make this untrue. (For example, having to take the house "as is," not getting any history on the house as is required disclosure in a regular sale, etc.)

There is a plethora of short sales in the area you are looking, again, for many reasons. The most basic way to explain it is that, at the top of the market, people who were stretching, to buy, found this area as an affordable option when they probably shouldn't have been buying in the 1st place. Or - maybe they could legitimately afford to buy, but their job situation changed and they didn't plan far enough out to be able to make their payments to weather that storm.

A good agent can TAILOR a search for you to either exclude these types of listings from your search entirely -- OR -- for example what I do for some of my clients is that I make calls to the properties they are interested in and work to get the back-story from the listing agent. I find out who the bank is, and I learn what their processing times are - so at least my buyers get realistic expectations. For example, if someone has a short sale with Ocwen as a servicer, I would frankly advise my buyers to pass on that as I know that this particular servicer takes 3 weeks just to schedule a return phone call.

Let me know if you'd like further help! Good luck with your search!
1 vote Thank Flag Link Fri Jan 27, 2012

You have some very good answers here. I would like to add that REO properties typically sale for 40% below a comparable non distressed property. If the REO property is a HOME STEPS (Freddie Mac) property it will likely have a home warranty.There is often help with buyer's closing cost with HOME STEPS REO properties too.

Let not your heart be troubled, stay engaged in the home buying process. You are taking a big step by seeking advise from real estate professionals. "PEOPLE" will always tell you their horror stories, try not to listen to them.

Best Regards,
Kawain Payne, Realtor
0 votes Thank Flag Link Thu Feb 9, 2012
Short sale - Seller owes more on the mortgage than what the property is worth.

REO - Property owned by the bank.

Regular sale - Fair Market Value (Price is based on what similar homes are selling for in the area).

Your best opportunity to purchase a home where closing costs are paid for would be with a regular priced home. With a short sale or REO there isn't any equity left to pay for closing costs.
Web Reference: http://ninaharrishomes.com
0 votes Thank Flag Link Wed Feb 1, 2012
A little about HAFA (Home Affordable Foreclosure Alternative) which is a government directive for the banks to avoid foreclosures.

1) Banks have to answer to a request for modification in 30 days.
2) If the modification is not approved, they have to decide on a short sale in 30 days, which is selling the house for less than the loan (short of the loan). The seller walks away without a debt, and the bank avoids the foreclosure, which costs much more than the write off.
3) If the short sale is not approved, they have to consider a deed in lieu, which is giving the house as payment and walking away without paying the loan.
4) If nothing works the bank puts the house on an auction, and generally becomes the owner of the house (Real Estate Owned – REO or Bank Owned)

- Standard sale: have equity (equity sale). They are well maintained and get better sale prices.
- Short sale: the sellers are living in it, even they may have delayed maintenance as a result of the financial stress that created the need to short sale, but also that the seller won’t get a penny from the sale proceeds, hence there is no motivation to prepare the house for sale. They only walk away from the debt.
- REOs are generally way cheaper, but generally in worst condition. Vandalism is possible. It is becoming more common that banks will clean and paint the property before sale. It is rare, but I’ve seen REOs in really good condition (the price is higher also). You have to shop around.
- The financing of an REO or Short Sale may require an FHA 203k that includes the repairs and appliances.
0 votes Thank Flag Link Wed Feb 1, 2012

0 votes Thank Flag Link Mon Jan 30, 2012
Hi Eileen,
Home buying does not have to be confusing.
To answer your question going from the simplest transaction to the most difficult:
1. Regular sale is when the seller has equity in their home. You negotiate directly with the home seller and reach an agreement as to price and other terms. There are no additional parties that have to approve the terms of the transaction as long as the appraisal supports your loan amount.
2. REO is a home that is owned by a bank. In many ways it is like a regular sale. However, because you are dealing with a bank and not an individual seller, things may be more complicated. Often times there are contract addendums that the bank wants you to complete, so it is good to have a Realtor who is knowledgeable about contracts.
3. A short sale is when the seller owes more on their home than they can sell it for. The "Short" in Short Sale means that the bank is going to have to accept less than what they are owed if the sale goes through. For this reason, the bank has final approval on price and terms of the transaction. The first step is to make an offer to the seller. When that is agreed to by the seller, it goes to the bank for approval. The approval process can take from a week or two to many months, depending on the speed of the bank. When you are involved in a short sale it is really a good idea to be represented by a Realtor who has handled several short sales so they can help you understand the process.

As always, when you are looking to purchase, it is smart to have a preapproval from a mortgage broker or a lender so you can make offers when you find a property that you like.

Call me at 562-212-2345 if I can help in any way, and good luck to you and your family.

Gene Scott
Realtor and Loan Officer
ERA Buy America Real Estate Services
0 votes Thank Flag Link Mon Jan 30, 2012
HI there,

I can help with Short Sale, and REO sale. Please let me know what else can I help you.

I am working with Keller William at Long Beach, Please email me at judywu88@gmail.com or visit my website at http://www.judywu.com or call me at my cell phone number at 714.989.6622.

Web Reference: http://www.JudyWu.com
0 votes Thank Flag Link Fri Jan 27, 2012
Hi Eileen,
Buying a home can be confusing - even if you've done it before and even if you don't have to deal with short sales and such. But people are buying houses every day! It can be done!
To answer your questions:
1. A short sale, when the amount the owner owes on their loan is more than what the home is worth, is a little more complicated than a standard sale and may take longer to close. But they are not nearly as frustrating as they used to be. These make up a large portion of the market and short sales are completed every day in Long Beach!
2. In a regular (standard) sale, a person is selling their home and will pay off the loan when escrow closes, and maybe even make a little money in the process. Terms of the sale such as price, length of escrow and helping with closing costs are all at the discretion of the seller in this case.
3. REOs are homes that are owned by a bank in most cases, because the previous owner lost the home in a foreclosure. Usually they are priced very cheaply. But they can have a lot of problems and you usually can't negotiate much. Often these homes are sold "as-is". But some of them are not in bad shape!

The most important thing is to find an agent who's job it is to watch out for your intertests and work hard at finding you a home that fits your needs. The negotiating and paperwork and everything involved in working with short sales and REOs is your agent's job and he or she will make sure you come out a happy homebuyer once it's all done!
Did you know that using a REALTOR doesn't cost you anything? Why would you try to do this all yourself when you can have a professional help you for FREE?
Give me a call and I'd be happy to find some homes you're interested in, and explain the pros and cons of each one. I'll make sure you get something great at a price you can afford!
Debbie Lovrich
0 votes Thank Flag Link Fri Jan 27, 2012
Both of these links are EXCELLENT resources for this, and many other questions.



Best of Luck!
0 votes Thank Flag Link Fri Jan 27, 2012
A short sale is a property that the owners owe more on their home than the home is worth. The lender in this case is asked to reduce the amount of the loan that is owed to them. The owners need to have a hardship like loss of job, divorce or sickness for the lender to agree to the short sale. This type of sale can take anywhere from 2 - 6 months to close escrow and the buyers need to be patient.
An REO property stands for real estate owned. These are home's that the bank has taken back in a Foreclosure process where the owner's of the home have stopped making payments and the lender has taken back the property ownership. Do you have an agent who is doing a good job for you. ? I have been a Realtor for 39 years and know this business very well. Please give me a call so I can help you.

Russ Caldarella
First Team Real Estate
0 votes Thank Flag Link Fri Jan 27, 2012
A short sale is when a seller is attempting to sell the home for less than what is owed to the bank. It takes a while to get the sale approved but the price can be very attractive. In most cases the bank that holds the mortgage and is now making the decisions on the house will not pay your closing costs. But you can always ask.
Tony Renfrew
TNG Real Estate Consutants
Long Beach, CA
0 votes Thank Flag Link Fri Jan 27, 2012
You have some great answers already, but if you will like to work with a local agent in the area please feel free to call/email me.
DJ Bonner
Keller Williams Realty
0 votes Thank Flag Link Fri Jan 27, 2012
Hi Eileen,
Find yourself a trustworthy Long Beach agent to help you through your first time home purchase! Your agent will guide you through the options available, and the advantages and disadvantages of each. The differences between short sale, foreclosure sale (REO) and regular or standard sale have been well defined by the other respondents. What you should also know is that standard sales will normally close in 4 to 6 weeks; financially distressed properties usually take many months to close. Regrettably there is more demand for standard sale inventory in North Long Beach, than supply available. Have your agent hook you up to a listing alert that will identify standard sale properties as soon as they hit the market. Call me if you need more help.
Web Reference: http://www.ianhand.com
0 votes Thank Flag Link Fri Jan 27, 2012
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