What is the difference between an REO and Short Sale?

Asked by Margaret, Rancho Cucamonga, CA Fri Aug 29, 2008

I have heard that Short Sales transactions take longer than REO properties. Which would you recommend for a fast process? or is a short sale worth waiting for? Please let me know since there is a lot of inventory in my area.

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Joan Patters…, Agent, Rancho Cucamonga, CA
Fri Aug 29, 2008
Hi Margaret,

The difference between an REO (bank owned property) and a short sale are as follows:

1. REO has already been foreclosed on and is owned by the bank and they are ready to sell!

2. My advice to you is to offer more than what the bank is asking only due to previous experience and current experience. Most REO properties get many offers and the banks will accept the highest and best offer.

A short sale on the other hand is:

1. Being sold short of what is owed on the mortage to pay it off. And, it can take 5-6 months (sometimes sooner) to get an answer from the bank as to if they will accept the short pay off. Sometimes they will, sometimes they won't.

2. The listing agent must be experienced in short sales, otherwise, it will be a nightmare. They must know what to submit and how to follow up without being annoying to the negotiators. There is a fine line. I have experienced it many times!

3.. It takes a lot longer than an REO so if you are in a hurry to move into something, bank owned would be the way to go! If you have time to wait, then you can get deals with the short sales.

You still can do an inspection on the properties. The one nice thing about the short sales is typically the people are still in the house and did not leave mad. Sometime the REO's the people are mad and you just don't know all that they have done to the property unless you hire a great inspector!

Good luck!

Joan Patterson, B.A., A.S.P., G.R.I., Realtor
Keller Williams Realty
8250 White Oak Avenue, Ste 102
Rancho Cucamonga, CA 91730
951-204-1864
http://www.calljoan4homes.com
1 vote
Michael Barr…, Agent, Irvine, CA
Fri Aug 29, 2008
Hi there Magaret, You heard correct in most cases. Both can take some time. The banks are getting a little better with this new role that they now have. Most are employing more qualified people and setting up depts to handle this new business. Short sales can take time so if they for are the people with a lot of patience. An Reo proprerty is already owned by the bank and they want to sell fast usually. They usually drop the price below marker to attract offers and go through them looking for the best one. However occasionally they let them go a really low price to reduce inventory. Its all ablout timing and market expertise. They will very rarely do anythingn to the house . Bought AS IS is a common term.

You have to very careful in both of these areas and I would strongly advise you to hire a realtor who is very familiar in this area. There is a lot to them and not very agents work short sales as they require a lot of work and the banks usually want to slsh the commissions. These tow areas of the market about for the bulk of the inventory in Rancho Cucamonga so I would be happy to sit down with you to explain how they both work if you are interested. It would take too long to type it out on this forum.

Kind Regards
Michael Barron
First Team Real Estate
michael-barron@sbcglobal.net
1 vote
Diane Wheatl…, Agent, Upland, CA
Fri Aug 29, 2008
A short sale is a home that has not gone to foreclosure sale yet and the listing agent and seller are working with the lender on reducing the payoff necessary to satisfy the loan or deed of trust recorded against the property. This can be a time consuming process and many times buyers are not willing to wait or they have found another home that suits their needs better in the meanwhile.

An REO (real estate owned) is a home that is owned by a bank or lending institution. This is a home that has already went to foreclosure sale and is now managed by the bank with an agent of their choosing to sell the property. These properties are typically priced very well because the homes are not inspected by the banks (usually) and sold in the current as-is condition with no warranties. What you see is what you get and if you don't like something about the home there are buyers in line behind you ready to present their offer.

You still need to be patient during the escrow period because the banks have their own tier of approvals that need to reviewed before it is finally ready for escrow to close and title to transfer but it averages anywhere between 45-60 days. Sometimes though you may be surprised and find a home that for whatever reason needs to close ASAP!

Bottom line is that both scenarios can be very good opportunities for buyers who are cognizant of the whole process, willing to wait and won't become distressed to the point of cancelling as they see their future dream home continue its demise in appearance and luster due to neglect and lack of maintenance. It really is worth the wait. Hope that helps a little and good luck to you.
1 vote
Sj209, Both Buyer And Seller, California
Fri Aug 29, 2008
REOs rule the roost. Short sales can be worth waiting for but REOs are the way to go. Only about 1/4 or 1/3 of short sales are completed. Not the best odds. REOs sell like hotcakes because the banks need them off their books.
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