What is the difference between Short Sales and REOs?!

San Jose Sharks

Sure both REOs and Short Sales represent opportunities to purchase a property at a discount, but there are fundamental differences between Short and REOs. Lets explore the main difference between the Short Sales and REOs:

1) Ownership: Fundamental difference between a San Jose Short Sale and a San Jose REO is the ownership. In case of an REO, the property has completed the foreclosure process and has been auctioned with no successful 3rd party bidders. That’s why the bank had to take possession of it and it’s now being marketed on MLS to retail buyers. In case of the Short Sale, the home sellers are still on title and they remain
active as principals till the close of escrow.

2) Time Factor: Short Sales are time bombs because the mere fact that the property is being sold as a short Sale does not mean that the foreclosure clock has stopped. In fact, the valley is full of stories of Short Sales that had to be re-funded since the property was sold at an auction a day before!!

3) Risk Premium: Risks and uncertainly associated with a San Jose Short Sale are much higher than a San Jose REO. In case of an REO, the buyer is purchasing the home without any knowledge of the property condition which can be remedies by an inspection. However, with a San Jose Short Sale there are so many factor that can derail the transaction. For example, if the owners decide to declare bankruptcy, the transaction will come to a halt till the bankruptcy is discharged. Also, there is no grantee that sellers offers will be accepted by the lenders involved in the Short Sale.

4) Extra Middle Men: In case of REOs, there is an additional entity which are the Asset Management companies retained to manage the day-day interaction of the listing agent. After all, banks can NOT be bothered with such tasks a Trash Out, Re-Key and Evictions. The mere fact that as a buyer you are not negotiating with the sellers directly has it’s own implications because the Asset Management companies are merely acting as gophers and have been give tight guidelines by the banks on the net value the bank requires on each asset based. In most cases, the banks will take a certain discount off the Fair Market Value of the REO listing based on how long it’s been on the market.

5) AS-IS: REO contracts are for AS-IS sale and the contract between the buyer and the bank will state that the bank will not issue any credit to the buyer for discovery of any problems with the property. In case of Short Sale, there is more opportunity to adjust the offer price based on the condition of the property.

Despite these differences, REOs and Short Sales have one thing in common which is a lender approval. And that means your Real Estate team should be keen on listing for the right clues from the banks Short Sale negotiators or the Asset Manager of the REO to find out when it’s a good time to steal a deal for their buyers.

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