A question I am asked often is what is the difference between Bank owned or REO (REO which stands for Real Estate Owned) and a short sale. Many buyers after going thru the short sale process think they should be named Long sale as it can take a long time. A bank owned home is what happens after foreclosure, when the bank actually owns the home and wants to sell it. This can be very close to working with a normal owner except that the asset manager, the person who can make decision about the property is usually only available Monday thru Friday. In Colorado, a standard contract is used, but almost all banks have their own addenda that attaches to the contract. It is their version of a a contract. You can do an inspection, but the bank will have their own policy about fixing things. Some will fix things, some will not, leaving you to decide if you find a big defect if you still want to buy the home.
A short sale is like a per-foreclosure. The owner still owns the home, however they owe more that the home is worth, and are working with their bank to allow the home to be sold in order to avoid foreclosure. The bank does not get paid in full, thus the name short sale. In many cases, the bank will approve the short sale if it makes sense to them even if they don’t get paid in full. If the owners mortgage is an FHA loan, it is possible to get the short sale per- approved. If it is not an FHA loan, the bank will not per-approve the short sale, or look at the paperwork until there is an offer on the property. For the home owners, it requires some work, they have to show their bank a hard ship and why they can not keep their home, ie. job loss, divorce, death, job transfer, sickness etc. Simply not wanting the home because it has decreased in value is not a reason for a short sale. Each bank has their own process. Once an offer is submitted, the sellers bank will order an appraisal. As I mentioned, the deal needs to make sense, if the offer will only net the bank 50% of what the appraisal shows the home is worth, the bank is not going to approve the offer. If the offer nets the bank 90%, they are likely going to approve it. Nothing is set in stone. It all hinges on the appraisal, this is how the bank determines what a home is worth. If an appraisal comes in high, that is not a good, as an offer that was netting the bank say 90% may look as if it only nets them 75%. I often see where a bank may counter after the appraisal, and the counter may be higher that the price that home was listed in MLS. The price the home is listed in MLS is nothing more than the agents best guess between what the bank will accept, and a price attractive enough to a buyer to get them to hang out for the short sale process. After the short sale is approved, the sale will proceed as normal. A buyer can and should do an inspection, but the owner is not likely going to fix anything. They are loosing their home, and have little or no incentive to fix things. Occasionally some will, but the majority wont. For more answers on the home buying process, please contact me. The process can be complicated and I am happy to explain all the ins and outs.
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