When you are buying a home, you may see a never-ending list of unfamiliar terms, including REO and short sale. Real estate owned (REO) properties owned by the bank, often the result of that home having gone through the foreclosure process. There are also short sales, which is a homeowner trying to offload their house quickly in order to avoid going into foreclosure. Understanding the pros and cons will allow you to navigate the home market with ease.
REO properties are owned by the bank because of an unsuccessful foreclosure. These are generally sold “as is,” which means you will need to perform your own inspection. These can come at a cost. You also must have preapproval before you are able to make an offer on a home. As for the advantages to buying these kinds of properties, you may be able to get a great deal. However, the bank has already spent a significant amount of money with the cost of evictions, liens, and property taxes, which means that there isn’t a lot of room for negotiation.
You may be able to get a great deal with an REO property, but it is definitely a case of “buyer beware.” You will want to check out the property, perform the inspections, and make sure that you are getting your money’s worth.
Short Sale Properties
Short sales occur when the mortgage lender of the seller agrees to accept an amount lower than the total value of the mortgage. It can involve a significant amount of negotiation in order for the mortgage lender to agree to the terms.
The pro as a buyer is that you can get a home that is more affordable than comparable properties. Lenders will happily do a short sale as opposed to taking the property back through foreclosure in most instances. The only con to this is that the approval process can take 60 days or more. A lot of buyers run out of patience and decide on a different property. If you have the patience, it can pay off in a big way in the end.
It’s always a good idea to work with an agent so that you can make some comparisons and get some real estate advice throughout the process. Both REO and short sale properties are going to give you a discount in comparison to the average homeowner who decides to put their house on the market without any kind of financial distress.
Not all properties are a great deal, however. Both types of sales come as a result of someone not having enough money to stay in their home. This means that there may be various details that have been neglected, such as roofing materials, HVAC systems, flooring, and more. You will want to inspect the property carefully before you decide to purchase. Either way, it’s a good idea to get preapproved so that you know what you can afford and then begin exploring the market to find the best deal.