Bank Owned or Short Sale : What is the difference?
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There is a common thought amongst buyers in this market that Short Sales and Bank Owned (sometimes referred to as REO) properties are where the deals are. In some cases this may be true. Is there a difference between them?
Short Sales
A short sale is one in which the proceeds from the sale of a property will be less than what is owed on the property, and is a method of avoiding foreclosure. The seller will need to work with the lender or lenders that have mortgages on the property to petition them for forgiveness of some of the debt that encumbers the property. The sale and purchase contract is executed between a prospective buyer and the seller. Typically, short sale purchases are "AS IS". Once signed by both parties, a contract exists for the sale of the home, but that sale is CONTINGENT upon bank approval of the contract. Once submitted, the bank will establish the value of the property, by ordering either a full appraisal or a Broker Price Opinion. The bank then examines the value of the property and compares it with the net loss it would be exposed to by releasing the lien it holds on the property. Once this evaluation is performed, the bank can then approve the contract, reject the contract, or make a counter offer. Because the bank is trying to limit its losses on a short sale, the final approved purchase price may not be drastically below the market value of the property.This process frequently is very long, and, as the saying goes: THERE IS NOTHING SHORT ABOUT A SHORT SALE!!
Bank Owned (REO) Properties
Bank Owned (REO) properties are those that have been through the foreclosure process and are actually owned by the bank. Often, banks are highly motivated to remove these properties from their inventory and may price them very aggressively. Also, the condition of Bank Owned Properties varies widely. I have represented buyers in a number of these type of transactions and have seen properties ranging from move in ready to WOW we have work to do!! Traditionally sold "AS IS", the contract for purchase of a bank owned property is executed between the buyer and the bank. It is common to come to final resolution of an offer in 72 hours to one week. The bad news with Bank Owned Properties is that because they are frequently priced very aggressively, multiple offer situations are pretty common. Banks also expect buyers to close quickly, typically within 30 days from the effective date of the contract.
In Summary
There are good and bad things about each of these methods of purchasing property. An informed buyer is an empowered buyer, and it is critical for a buyer that is considering these options to work with a Realtor® that is experienced in each of these specialties. I would be honored to discuss my qualifications to assist you in either of these methods of buying property.
