Coincidentally, I just wrote a blog post about this exact issue. It's a very general overview of the pro's (but mostly con's) of buying foreclosures and short sales:
If you are serious about buying, you need to first find a REALTOR to work for you as a Buyer's Agent. He/she will be able to sit down with you, discuss your wants/needs, your budget, etc. send you listings, take you to look at properties, research what fair market value is, etc.
It is simple, REO you have 0.01% to get one and if you do its most likely not a good one since there are many investors out there buying these REO's fast CASH and they are connected to the right people to get them before you or anyone else even know that they exists.
Short sale, you have much better position since 1st you can locate the house and owner by yourself and get someone to do the shortsale for you, 2nd as it might take longer you get a house that someone live in it to the very moment you move in so it will be in good condition Vs REO that the houses stay vacant for months-years and time do its work, vandalism etc.
feel free to call me at any time with any quastions, also you can view my website for approved shortsales and other good houses.
And if you find a seller that likes to make a shortsale we can help you with and we guarantee our service.
Shortsales are great opportunities when there is only one loan on the property and the lender has an efficient way of handling shortsales.
REO's can be a great opportunity if the lender understands the true value of their property and if they are ready to let go of the inventory.
In both cases, you or your Realtor need to do their research. Find out how many loans, who the lender(s) is, what the history of the property is, how much repair needs to be done to make it a marketable property, and what is the local tax base.
Once you do find a good property, then you can also think about using one of the 203K programs.
Here are 6 tips when purchasing a shortsale
Here is information to consider when purchasing a REO property
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Prudential California Realty, DRE# 01874431
REALTORÂ®, GRI, CDPE, Short Sale & Foreclosure Resource (SFR)
Neither is 'better' per se....they each have pros and cons. Of course, the best to buy is a Standard Sale.
Foreclosure/REO: Can get a good price. Typically closes faster than a Short Sale. Typically sold 'As Is' and the bank typically will NOT do ANY repairs. Usually the property has been vacant for a while and the bank does not know of 'issues' with the property since they've never lived there. The bank is exempt from many seller disclosures because they have never occupied the property.
Short Sale: Can also get a good price (if the lender(s)/investor(s) approve). Can take anywhere from under 24 hours to 6 months for approval of the short sale (yes, I've had approval in under 24 hours...) and then once approved by the lender(s)/investor(s) you need to add time for closing (typically 30-45 days after date of approval). Must be patient with short sales but if your Realtor stays 'on top' of the Listing Agent, it can be done. If you find a short sale you really like, don't give up - it can be worth it. Most short sales are also sold 'As Is' - the seller usually can't afford to do any repairs (hence, the short sale) and the bank 'typically' won't do any repairs either (but they are more likely to do them on a short sale than on a REO - ask, all they can do is say 'no'). The seller has to do all seller disclosures (unlike with REOs) because they have lived in the property. This is a 'plus' for short sales over REOs. Also, if the seller is still living in the property, the property may be being taken better care of than a vacant REO.
Whichever you decide to purchase, make sure your Realtor does a Comparative Market Analysis (CMA) on the property BEFORE submitting your offer - using Sold comps within 1 mile radius of the property (the closer, the better) that have sold within the last 3 months. This will give you market value (which is what the lender(s)/investor(s)/bank will be looking for - not necessarily the list price). You want to base your offer on market value so you have a better chance of having your offer accepted instead of other buyer's offers.
The last deal i had, we were $300 away from a deal. The bank wouldn't come off $300, after 10 months, the buyer walked. All over $300. So shorts sales have a much different process than a forclosure.
You can get good deals on both, but the forclosure would be a better bet.
Forclosure means the bank has played all the games and are now ready to sell the house. It is very important to look very close at these homes. Most have set empty for months with no utilities/have been vandalized/had water in the basement and many other things. Just because it is bank owned doesn't always mean it a good deal.
And it depends on what you mean by "better." I assume you mean "cheaper."
To oversimplify: Who's going to sell it cheaper: The bank or the bank? Yup, that's right. In both cases, the bank determines the price. In the case of a foreclosure, the bank actually owns the property. In the case of a short sale, the owner is the purchaser from a few years ago. However, the sale is contingent upon the bank's approval of the price.
And in both cases, the bank largely uses its determination of the value of the property. That determination comes from what's called a "BPO" or broker's price opinion. It's like a quickie appraisal, but generally a lot less accurate. The one major difference is that foreclosures and short sales are handled by two different departments within the bank. So you'll frequently see a variation in how the actual transaction is handled. And generally--though not always--foreclosures are comparatively easier than short sales.
But if you mean: What's the better value? There's no "a foreclosure is better than a short sale" rule of thumb, or visa versa.
And to complicate things further, sometimes a conventional sale is best. It certainly will take less time than a short sale, and often less time than a foreclosure. The home might be in better condition--people who lose their homes via foreclosure, especially, are tempted to trash the home. And if it's in an area with some foreclosures or short sales, the owner knows that, to compete against foreclosures and short sales, he/she will have to be price-competitive with them.
Hope that helps.
You can read a little more about buying foreclosures here: http://richardschulman.com/foreclosures/
And short sales: http://richardschulman.com/buyers/short-sales/
Keller Williams Realty
Short sales are another breed all together. You can get a very good price however the risks outweighs the bargains many times. Banks stall for month's and you as the buyer may think you have a deal but banks are not realtors and live by a whole other set of rules. You can have an accepted offer but if a cash deal comes in or a much more attractive offer they can nix yours and move to the other. You must have a realtor that remains a KIND PEST!