Short Sales, Foreclosures and REO's oh my...
First a few definitions and terms that get thrown around these days.
Short Sale: Homeowner owes more on the home then it can be sold for. They owe the bank 550 on a house that will probably sell for 500. They are trying to escape foreclosure by dealing with the bank upfront. The bank may or may not agree with this. Many sellers are trying to do short sales and the bank are swamped, if you have an offer on a property it may take weeks to get an answer. If there is a second or third lien holder they may block the sale because they may get nothing if the home sells. Only 15%-20% of short sales actually close.
Foreclosure: This is the other big buzzword in real estate these days. Foreclosure and what it means to the average consumer is a little misleading. Homes that have been foreclosed will end up at auction on the court house steps or in one of the many auctions that you may read about. Most of these auctions were the domain of professional buyers who had cash or (cashiers checks) in hand and knew what they were doing. Think shark tank. I have heard of some of these auctions now catering to regular buyers with financing and other things people come to expect when buying a home. How auctions work is you have a window of time to inspect these properties and then you go and bid. If you have no way of getting a current title report you would also be exposed to prior liens on a property. It is possible that there are liens pending that do not show up on the title report and/or you cannot get title insurance. These are not the venue for the faint of heart.
REO or “Real Estate Owned” If a home does not sell at auction the bank assigns it to an asset management company. The asset manager gets 3 BPO’s or “Broker Price Opinions” they then give the home to an agent to list and tell them the list price. If the property does not sell after a certain period of time they will reduce the price. If it still does not sell after a certain period of time they will reduce the price again. This is usually a steeper price reduction and what I have been told the best time to make an offer. The process of buying a home as an REO is only vaguely similar to buying a home through traditional means. Low offers will usually be countered back to close to asking. Multiple offers will usually be countered back to “highest and best”. All parties will have a chance to resubmit, hold or withdraw. This will most likely be done verbally. All of this will take more time than a traditional RE transaction and you will need to be willing to take the house “as is” or risk losing the sale. Still want to buy a foreclosure, REO’s probably represent the best possible scenario for buyers these days. REO’s can be searched on the MLS and offer the most protections possible for distressed properties for a buyer. That being said there are many more things that I have not touched on where the bank dictates the terms. There are a lot of REO’s on the market now. However when they do come on the market if they are priced right and in good neighborhoods (I am seeing more of these) they are getting offers, so it is also likely some of these will have multiple offers.
There is no free lunch in this game you either have the money or the time to deal with these issues.
These transactions can be complex and having a good agent is important. Want to know more... give me a call.