REO stands for Real Estate Owned (by the bank). This is property that has been foreclosed upon and is now owned by the bank. Due to the current economic situation, REO properties are fairly common in the marketplace. As a consumer, it is not extraordinarily complicated to purchase an REO property. However, there are some important factors to be aware of.
REO properties are generally sold “AS-IS”. This means that the owner, (the bank) will not make any repairs. The buyer is still able to perform the usual inspections but the bank will not entertain any request for repairs. If the buyer does not approve of the condition of the property, then it is up to the buyer to cancel the contract.
Lately, the REO properties are often priced lower than other similar properties in the area. This is so that the bank may sell the properties “AS –IS”. It also creates interest in the properties and in some instances creates a bidding war and drives up the price. In many instances, the bank requests that the buyer submit their “Highest and Best” offer. This is so the bank does not have to deal with multiple offers and counter offers and also has the effect of getting the highest price possible for the property.
When purchasing a REO property, it is important for the buyer to carefully research the comparatives. It is also very important to assess the amount of repairs that would be necessary to improve the home. Usually, the bank is exempt from disclosure since they have never occupied the property.
As experienced Real Estate Professionals we are here to guide you through the process. Call us for more information. 858-481-8185 To search for foreclosures click HERE
Short Sale
A short sale occurs when an owner owes more on the property than what they can sell the property for on the open market. In this case, the owner can request that the bank allow them to sell the property to the highest offer and forgive the seller the difference between the amount received and the amount owed. This is an alternative to the bank foreclosing on the owner. It is often in the bank’s interest to allow a short sale since foreclosure is expensive for a bank. Once they take the property back they would still need to sell it on the open market. As an example, if the home was purchased for $500,000 and would now sell for $400,000, the owner would ask the bank to forgive them the $100,000 difference. There are tax and credit consequences to this type of transaction so it is always recommended to consult a tax professional.
Currently, short sales tend to be a bit complicated for the buyer. The process of getting an approval on the short sale has been taking 3 or more months. This often depends upon where the seller is at regarding the process of getting the bank’s approval. In our experience the buyer generally makes an offer on the property and then waits to see what happens. If the offer is accepted or there is a counter offer made by the seller, the buyer can then decide whether or not to proceed with the purchase.
As with REO properties, the short sale properties are usually sold in “AS-IS” condition. This is often due to the inability of the seller to afford any repairs since they are already selling at a loss. There may be disclosures made by the seller but as always, it is best to do a thorough inspection of the property.
If you are thinking of selling or buying a short sale property, call us for more information. We are here to help! 858-481-8185