What to Know When Buying Foreclosures or Short Sales

Sales of distressed properties dominate the current real estate market. That's your cue to take advantage of this market!  In some areas, short sales, foreclosures, and other distressed properties comprise over half of all real estate transactions.  With so many real estate transactions involving short sales and REO sales, it is easy to see where they are procuring properties at less than market rate. According to many experts, this trend will continue through 2010 and well into 2011.

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What is a short sales vs REO?

A short sale is a property being sold for less than what is owed on it.  However, there are properties that are being sold "underwater"  that are not true short sales. In a true short sale, the owner has proven to their financial institution that due to some type of hardship (job loss, divorce, death in family, health issues), they can no longer afford to pay their mortgage. The financial institution has given approval to the homeowner to sell below what is owed. This occurs before foreclosure and has some benefits for the seller, buyer and financial institution.

An REO is a property offered for sale that has already been repossessed and is bank owned.  The property owner prior to foreclosure has gone through the entire process without paying their mortgage. This has gone on for months and in some cases, years.

In the case of an REO, an investor finds a property, completes an offer sheet and submits it to the bank. The bank either accepts the offer or declines it. The bank may then create a counter offer. This is similar to a "normal" real estate transaction. However, during the time between when the bank receives an offer and makes a decision, another offer may come in. This can lead to a bidding war between two or more parties, often causing the selling price of the property to rise above asking price.