My question is...What is the difference between a SHORT SALE, REO and BANK OWNED?????

Asked by Kim Russell, 92253 Tue Apr 7, 2009

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Steven Ornel…, Agent, Fremont, CA
Wed Apr 8, 2009
HI Kim, this should help:

A Short Sale is where the net proceeds of the sale will not satisfy the current payoff amount of the 1st and/or 2nd mortgage, if applicable, and the resulting selling costs. Typically in these cases there are also significant unpaid property taxes.

A Buyer's offer is typically made contingent that the Lender provides written approval of the Short Sale. Once this happens the Buyer's contingency timelines start. The Seller does not work with the bank directly, the Seller’s agent does, and I can tell you that use of the word “work” is an over statement. Yes, a large package has to be submitted to the bank to support a case of hardship; however, there’s not much back and forth status between the Seller’s agent and the Lender, which can be extremely frustrating for a Buyer and the agent that represents the Seller. Expect a 60 to 90+ day transaction period as the Lender(s) determines whether the offer is sufficient to approve. Normally, the property stays on the MLS until the Short Sale Approval is granted, so a better offer may sneak in. Short Sales are hard on everyone involved, in my opinion.

REAL ESTATE OWNED (REO) a.k.a "Bank Owned"
Once the lender forecloses on a home an attempt is made to sell it on the steps of the County Courthouse. If there are no buyers the lender becomes the owner, along with all the responsibility of the property taxes, utility bills, property insurance, and the risks of having a non-inhabited building. These are typically listed quickly (depending on physical condition) by an agent on the MLS working with the bank. In my experience, these are a better deal than Short Sales because once you submit your offer you normally get a response within 2 to 7 days.

In my opinion, the REO is the better way to go, but don’t overlook the "non-distressed" homes out there. With the extra supply of Short Sale/REO homes on the market Sellers are feeling the pressure to be competitive. Chances are that you can find a home in better shape for close to the price of the Short Sale/REO.

I hope this helped.

Also, one other thing:
RealtyTrac is not a listing service, they just take public record and tease you with it so you will pay them a monthly fee to get more information that any Realtor who knows what they are doing has acccess to. Most foreclosures are listed on the Realtor MLS sites - at market value, not the low price shown by RealtyTrac, which is nothing more than the amount(s) in default. If you are looking for a Short Sale/REO have a REaltor in the area you are looking in set you up with an automated MLS search agent for properties that meet your search criteria. Results would be automatically emailed to you. This is the BEST way to stay on top of what's available.

Good luck in your search.

Best, Steve
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Homa Moaddel, Agent, Foothill Ranch, CA
Tue Apr 7, 2009
Hi Kim,

REO and Bankowned are the same. These are homes that are foreclosed and are now owned by the banks. In Shortsale the home is valued less than the loan amount. So the seller/owner has to get the approval from the bank to sell the home for less than its original loan amount. The bank also make the final decision to approve the shortsale. Shortsale take a long time because the bank has to evaluated the seller financial situation. A seller in a shortsale has to prove that he/she has a real financial hardship.


Associate Broker
Prudential California Realty
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