REO vs Short Sale..What is a Short Sale?
Monday, May 11, 2009
This question is asked of me everyday. A short description of the differences should be addressed first.
Since Short Sales are more prevelant than REOs I will start there. A Short Sale is , simply, the process of selling a home for less money than is owed to the mortgage company. Commonly found in San Jose today, the pitfalls of buying this type of home are many, it is important to realize it can be done however, the final price is determined by the bank.
Once the seller has accepted an offer, the listing agent, subsequent to submitting the third party authorization to communicate on your behalf, will submit it to the banks representative for approval. The party to which the agent is communicating may only be representing the bank…a servicer. This means we have now added a new layer. How many times have you heard “I want it from the horses mouth”? Well, it is not likey the horses mouth will be speaking. It takes several days and sometimes weeks for your offer of Short Sale to be assigned to a negotiator (loss mitigation specialist) who will then begin the process of reconciling the numbers.
A BPO (broker price opinion..basically, a market analysis) will be ordered to learn the market value of the property and a financial statement will be required from the seller. Actually, what the seller has to produce is a very long list. None of this can happen until the seller’s agent has packaged the offer correctly. Mistakes here will set the procees back even further. An experienced agent is paramount in these sale situations. This is no place for a newbie.
If all is done well the sale can proceed per the purchase contract. The date that the bank approved the short sale is the ”actual date” the contract timelines begin. This applies to REO sales too.
An REO, on the other hand, removes the seller’s emotions and other complications from the real estate equation. Getting it “from the horses mouth” is bit more likely. Still, there are servicing companies negotiating for the bank in most cases.
Many buyers want to make offers below the asking price of an REO. This can be fraught with problems. The bank already priced the property according to a number of BPOs they have ordered and reviewed. The highest and best price is the only offer they are interested in. You want to be that offer. No? Yes, you do.
The terms of the contract is where you are going to make your money. With the bank focused on the price they leave open the terms of the contract for you to get your advantage. A short escrow period or longer escrow, escrow fees paid, loan finance points paid and city or county transfer taxes are a few of the areas to negotiate your way to a great buy. The question of repairs is asked often….Yes, banks make repairs on REOs! I know you have heard different. Clearly stated and evidenced, necessary, cost of repairs can be negotiated after your offer is accepted. I have experienced this with buyer clients before. Investors know this very well! The bank does not MAKE the repairs…They reduce the price in accordance to the evidence and qualified estimates your agent must provide. San Jose has many single family homes and condos, for sale, that you and your agent should be considering using these tools.
What frustrations have you had trying to buy one of these homes?
