Buying Real Estate Short Sales or Bank Owned (REO)

What is the difference? 

BANK OWNED OR REO - A Bank owned property called a REO or Real Estate Owned is a property that has gone through the process of foreclosure, past the short sale and is now in the hands of the bank.  The bank will list these properties with real estate agents that specialize in foreclosed properties.   You can preview these properties with any agent and when you find one you really like you can make your written offer.  If the property has been on the market a short time, you may be in competition with other buyers and sometimes the prices exceed the price of the listing.  Many times you can write an offer for a lower price in hopes of getting a bargain, but the banks looks at all offers and of course take the highest price.   The REO property is sold "as is" but you can have all the inspections you want within the time period allowed on the contract.  The escrow is much the same of buying a regular real estate property. You get a preliminary report showing that the property will be free of liens and a map of the lot, so you can see the measurements of the boundaries.  If you have concerns, you can ask your agent to look into them for you.  

SHORT SALE PROPERTY - The short sale is usually listed with an agent that has listed the property for the seller and is trying to sell the home before it goes into foreclosure by the bank.  The payments on the property are probably behind a few months.   The bank can start the foreclosure process when the payments are 120 days past due.  Then the process continues for another few months.  The properties on the market as "short sales" are sometimes listed very low and are great bargain prices.    But you may not be able to buy the home for that price.    This is where the frustration comes in.  Even when the seller agrees to sell the property for the low amount, it has to pass the bank's approval.  This can take up to 2 months for the bank to respond.  Some listing agents can't even get the banks to respond to them for 30-45 days and in the meantime other offers come in on the same property for the bank to look review.  Since the bank has piles and piles of these foreclosures it is a long and tedious journey.   

Some short sales have a listing agent with a working arrangement already established with the bank, but until the home is owned by the bank, the seller is the owner and the bank is the one to satisfy.    In the meantime the time is ticking for the property to be owned by the bank and at any time your real estate agent can be notified that the property is now owned by the bank and the property is a new REO (real estate owned).  If this home is a "must have" it may be worth all the time and frustration of continuing through the process.  A lot of buyers move on and look for other properties because it seems there is no end in sight. 

At that time the bank will list the property with an agent that they are already working with, that specializes in foreclosed homes.  They seldom list the home with the agent that has the home currently listed.  The banks usually have a working relationship with agents that have made "foreclosures" their speciality.  At this time you may have to start over.   Your agent would have to rewrite your offer and present it to the new agent that is working with the bank. The price on the home may be entirely different. Often the price is lower than it was originally but this is also a price that attracts everyone looking for a bargain so you may have lots of completion.   What makes a property worth waiting for is things like:  the home is next door to your relative, someone who babysits for you, or the home you have loved for a long time.  If the home is a  "must have" just have patience.  Once the bank owns the property the process is fast, but the offers accepted by the bank are often much higher than the listed price because of so many buyers.      

The bank owned properties usually respond in less than a week so you don't have to wait very long to see if your offer was accepted.  In the meantime other prospects are looking at the property because it is on the MLS (Multiple Listing Service) which means the property is exposed to everyone in your county and beyond.    If the property is in bad condition and not in an ideal location, you may be able to get the property at a low price, but remember "location, location, location". If the property is a nice one, you will have competition and many times the offers go much higher than the listed price.  Your agent can guide you through the process.

 The newspaper ads looked so good and the prices so reasonable that knowing the difference between a foreclosure (REO) and a short sale will allow you ahead of time to know what you will be experiencing.  Ask your real estate agent lots of questions and get all the details.   This guide is my own experience.

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