Question Details

Deborah Madey, Real Estate Pro in Red Bank, NJ

How often do you see short sales being a great deal for a buyer? What about REO properties...are they a deal?

Asked by Deborah Madey, Red Bank, NJ Wed Mar 19, 2008

In my experience, I do not see short sales as builidng instant equity for a buyer, but rather a buyer acquiring a property at market or slightly below with a lot of stress, delays, and unknowns. I will help any buyer purchase a short sale if it is the property that meets their needs. I hear buyer inquire about short sales, thinking these represent great deals. I see REO rpoperties sometimes priced very low, depending upon the lender and the listing agent. I see more investment oppty w/ REOs vs. short sales, but encourage a buyer to look at all properties in the market. It would be great to hear from consumers and RE Pros on this.

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I agree and have been saying this for a long time! You are wasting your time....

FORECLOSURE REALITY CHECK…. The only “sellers market” in america is the foreclosure market. Don’t expect any deals from a foreclosure as the bidding process brings 20-30 people to bid on almost every deal. A deal that was already priced at market. For government foreclosed homes, by law, they have to be priced “at market”.

The REO manager has a short list of “cash/close in 2 day buyers”, they always get the first right to bid. Then they have to wait for the “public auction” Which drives up those prices. After a 30-60 day period. Then the REO picks the best bid. Sometimes, only sometimes does a REO manager take a property directly to a buyer he knows personally. Why should he, he has a bunch of people bidding and driving up the prices.

My REO manager friend likes to joke about all the “first timers” who continue to drive up the bid when they don’t hear anything from the bank. Every time I see the “how come I haven’t heard from the bank about accepting my foreclosure bid after 30+ days” on trulia, I have to let out a chuckle because he’s so right. For those newbies, this is real. They know that when you don’t hear from them that a large percentage of people drop a second or third offer higher than the previous one. **WARNING, YOU ARE BEING TAKEN ADVANTAGE OF HERE**

You want a deal on a property right, everyone wants that…. So the moral of this story is:
1. the 60 days you have to wait to hear from a REO, you could have made 2 or 3 better deals with a property that has been on the market for a long period of time. A good realtor will drop an 80% offer on a property and get one accepted.
2. You are attempting to make a deal in a house covered in a cloud of bad energy, don’t be surprised when it rubs off. Personally I stay away from these for this reason entirely.
3. One way to get a deal is dropping a hand written note on ANY house in a neighborhood you want to buy that says “my girlfriend and I want to buy a house in this neighborhood and yours looks cute from the outside. Do you know anyone that is looking to sell?” I always get responses, better prices and positive energy into the home.
1 vote Thank Flag Link Sun Mar 30, 2008
I think one way with inflated BPO is to educate the person. If you can, get their numbers and talk to them. Since banks are getting BPOs from out of area agents/appraisers, they often have no idea of what the real marke trend is.

Tell them why the price is so low, and property history (how you tried to sell at a certain price, could not, drop the price, and drop again, etc). show them the comps; not with the normal lilstings but the comps for short sales, NOD, foreclosures and REOs in the area. Not just the comparable propeties but also the ones right below / above your property and have impact on the marketability of your home.

If you can educate them before hand, you might have a better chace to get it right.

My $.02 also.

1 vote Thank Flag Link Wed Mar 26, 2008
Sylvia Barry,…, Real Estate Pro in Novato, CA
Inflated BPOs! Who'd a thought! Just kidding kids.

YES inflated BPO's are a nightmare. It has been my experience that BPO's are mostly done by rookies (newbies if you prefer). They have been told by the more seasoned agents in the office that it's a good way to get listings. The fact is in the case of a foreclosure BPO the future listing agent is usually decided. Other BPO's are done for re-fi's.

I did 'em when i was young and silly. But there was another problem, my broker wanted the 50/50 split on them. The Franchisor wanted 6%. Hmmm that left me with less than the tank of gas and the lunch I ate while I did them.

After a while I got smart. I will still do them BUT, my fee is $250 for a drive by and $400 for an internal. When I told the BPO clearing houses my new fee structure they said I priced myself out of business and I said "GOOD".

My theory is they can get a real appraisal for $300 bucks or so. They are asking me to work cheap. My time has value.

BTW: I have actully been asked to do BPO's out in the sticks since then and when I reminded them of my fee they flinched but they paid it. It's been a number of years now since the asked

Just my $.02 worth
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1 vote Thank Flag Link Wed Mar 26, 2008
I agree, I think REOs are better deals than Short Sales. My theory is that with REOs, the property already went through the whole short sale process, and it might not have offer at all, or if there was one, the offer was so low that the bank rejected it and rather put it on market for foreclosure. After they ended up with the property back in their inventory, they really have to try to unload the property 'fast', thus the real low price.

Problems with REO - you don't have disclosures as the bank never lives in the place; you have one-sided banked created contracts to deal with, you have a house that could potentially be a big mess to rehab, you have limited time to close; but most hold true for short sale also.

Some banks also artificially price the house lower so they can generate interest - they are mostly successful because buyers/agents see a good opportunity, they know it and they jump on it. Often times, those properties are getting multi offers and the bank is treating it as auction or eBay (except you don't know the lowest price they'd accept), rejecting one by one until it reaches the desirable price.

Oh, speaking of a hassle when dealing with short sale - I have one right now the whole operation is outsourced to India. I get a different person everytime, and THEY have absolutely no idea what's going. After waiting on the phone for so long to just get connected, they ask you to wait because they have to read the previous comments and make sense out of it.

Very frustration experience, indeed.

1 vote Thank Flag Link Wed Mar 19, 2008
Sylvia Barry,…, Real Estate Pro in Novato, CA
Hi Deborah. In my experience, neither short sales nor REOs are necessarily good deals, but it's much easier to handle a transaction involving a REO than it is to come to closing on a short sale. For a buyer's agent, short sales are mainly a pain because of the uncertainty, but they don't necessarily add to the buyer's agent work load. For a listing agent, a short sale can be a serious time eater. I spend a lot more time at my desk making phone calls and jumping through hoops when I have a short sale. The frustrating part is that you deal with negotiators who don't have any decision making power. They tell you to do something, but there's no guarantee that the decision makers will render a favorable decision even after you have done everything you were asked to do. There's a lot of spinning your wheels. I think REOs are easier to deal with because you deal with only one bank and there's no intermediary. The offer is submitted to the decision makers, not a negotiator and you get an answer much quicker. Once the property is bank owned, the bank usually has more flexibility with the price because you don't have to worry about getting the approval from the junior lien holder. Another problem that I see out there is inflated BPOs that are used by the banks for their decision making.
1 vote Thank Flag Link Wed Mar 19, 2008
Ute Ferdig -…, Real Estate Pro in Newcastle, CA
I think that if the buyer will look at all the homes that match what they are looking for, most of the time they will buy a home that is not a short sale or a foreclosure. I do not find those homes to be great deals when you adjust for the condition and compare them to the other homes currently on the market.
1 vote Thank Flag Link Wed Mar 19, 2008
HI deborah, I list and sell both short sales and reo's. In my umble opinion reo's are the best deals out there right now. for one, an average seller can not compete with the great deals a bank can sell to your buyers for. There is know waiting on weeks on end for your buyer to get an offer accepted, I have litterally lost buyers because they just didn't want to wait anymore for the deal, plus prices started dropping down further and they started shopping for other great deals. I would like to add that yes there are some reo's that are in poor shape, but this isn't like the market in the 1990's, there are really great homes being lost back to the banks, also I represent banks doing new construction and there have been some hecka good deals! I agree that investors are definetly buying up the reo's... good luck to you
0 votes Thank Flag Link Thu Mar 27, 2008
Thanks for your answers..

Ute.....Why are banks getting inflated BPOs? What can be done to bring BPOs in line w/ today's market?
0 votes Thank Flag Link Wed Mar 26, 2008
Deborah Madey, Real Estate Pro in Red Bank, NJ
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