The topic of hot debate, what's the difference between a short sale and bank owned property (REO)? 
This is a great question. There are two big differences. A property being sold as a Short Sale is still owned by the current home owner. They are in default on their mortgage and instead of being foreclosed on and ruining their credit more, they ask the bank to accept a sale and take less then what is owed to bank, it's the banks choice to take this or not and some banks are not offering this option anymore. A Bank owned property or REO (Real Estate Owned) is a property that has already been foreclosured on and has been taken back by the bank and being sold by them.
I have put together a pros and cons list of purchasing a bank owned and short sale property in and around the Orlando area.
Short Sale PROs:
From my stand point there are very few pros
1. These homes are often times in move in ready condition (home owner often times still live there)
Short Sale Cons:
1. Average time frame it takes to just get a response to an offer: 3 months but can take well over 6 months
2. The price you see has nothing to do with the price the bank is williing to accept. Hopefully the agent did their home work, but if an appraisal comes back $70,000 higher then the list price, be sure the bank will want that appraised value, they have no incentive at this point in the game to sell the property for less then what it's worth.
3. There are often times more then one loan on the property meaning that the short sale process involves more then 1 bank, double the time and work.
4. Since we are in a declining market the average depreciation right now is 1% a month. So lets say it takes 4 months to get a response to an offer you made back in February. You cant change your offer price and now the property might worth 4% less then what you offered. Not such a good deal anymore.
5. Sellers usually have no money to make repairs to a home and the bank isnt going to either.
Bank Owned Pros:
1. Response time. Banks normally respond to your offers in 24-48 hours.
2. Price is generally below market value, sometimes way below, meaning you truly get an outstanding deal.
3. Most times your appraisal will come back at asking price or sometimes $30,000 higher, meaning instant equity.
4. Even though properties are AS-IS you can still get new roofs put on and major FHA items taken care of before closing.
5. The price on the listing is a price the bank will accept no guessing.
Bank Owned Cons:
1. Some bank owned homes need TLC - New flooring, paint or missing appliances and fixtures that were taken out by angry home owners.
2. Since the prices are great there are often times bidding wars, so be ready. Homes normally have multiple offers on them within the first few days of entering the market.
Im sure each agent will have their own take. I started with short sales back in 2006 when very few of them were being done and things were different but as the market started to slide so did the process and my view point of them, so I got into listing REO properties for the bank and selling them to my buyers. I have the knowledge and experience of working both sides of these transactions and feel I come from a point of experience and not just perception
Heather Joubran at 407-810-6304 or send me a text or write me an email Heather@HeatherTheRealtor.com or if you are bored twitter me the message LAKE MARY REALTOR
Heather Joubran, GRI, NRBA, CLHMS, CDPE
RE/MAX Central Realty
www.HeatherTheRealtor.com (407) 810-6304
Specializing in First Time Home Buyers, Short Sales, Bank Owned Real Estate, REO & Foreclosure Properties
Servicing Real Estate Needs in: Lake Mary, Longwood, Winter Springs, Sanford, Altamonte Springs, Oviedo, Orlando, Downtown Orlando, Thornton Park, College Park, Winter Park, Maitland, Windermere, UCF, Lake Nona, Baldwin Park, Apopka, Ocoee & Winter Garden
Good info Heather! Thanks for sharing. How did you break into the REO market if you don't mind me asking.
Sincerely,
Kathleen
Thanks for the post Heather...I'm just wondering why the response time is so different between a Short Sale and an REO given that you're dealing with presumeably the same bank? Thanks for the info
Brian you are dealing with two seperate entities. In a short sale situation the bank is not the owner but the note/lien holder against the real property. Time it takes is because someone has to be assigned to a file and the ultimate owner of the note the investor which is usually not the bank you make your payments too has to be tracked down and presented with these offers the bank is not the owner just a lien holder. In a bank owned scenario the bank now owns the real property and is the decision maker. Hope that helps some. Big differences between the two.
Good information Heather, a very good list. I would be interested to see others add their takes to it. Excellent point Brian, I have often wondered the same thing.
Mike and JCKC thank you
I am in the middle of helping my first client into a bank owned property. I would have to say that the bank owned vs. short sale is huge. Most (not all) bank owned property is fairly well taken care of. With short sale property you really don't know what condition you will get the home in. Great post I think I will reblog :)
Heather,
Always an important topic, thanks. I've had marvelous results with Short Sales too. One major PRO of Short Sales is that there are a lot more of them - at least in my area. (Many but not all REOs were listed as Short Sales at one time.)
This is an excellent synopsis of the difference between short sales and bank owned properties!
Featured in the Group "Whacked!!!"
Dan - Thanks
Richard thanks for the feature, it's a passionate topic for me. I guess those are always the ones that make better posts.
Irene - short sales probably consume 2/3 of our market and with the moratoriums bank owned inventory is down right now but still place my money on REOs
Short Sales are typically anything but short. Nice post. Thanks for taking the time to write this timely piece.
Hi Heather, very well written explanation of the concepts and differences. I find myself all the time explaining to buyers what a short sale is opposed to a foreclosure, there is quite a bit confusion out there about that so every bit of education helps! Thanks!