Buying real estate is not as straightforward of a route as it may appear. That’s why having a real estate agent on your side is beneficial. There are several purchase routes at your disposal. You must consider these as a buyer or an investor to ensure you get the maximum value for money.
Short sale and REO properties are two critical types of properties. The circumstances around their sale define them. As someone interested in buying real estate, you must choose between them. It’s best to know about the differences between them so you can make the right choice. This blog will discuss what they are and explain the differences between them.
What Is a Short Sale Property?
A short sale property is one sold at a lower value than normal. This is usually by a homeowner facing financial difficulties. Such a situation arises because they have excessive debts that they can no longer pay off and need to liquidate quickly to control the situation.
In case of a short sale, the lender who gets money from the sale of the property has two options. They can either forgive the remaining amount or apply for a deficiency judgement.*
*Deficiency Judgement is when the court orders the debtor who has defaulted on a secured loan to pay the difference between the remaining mortgage and money paid back after the property sale.
What Is an REO Property?
Real estate-owned property is a property that fails to sell at a foreclosure auction. The mortgage lender owns the property. They attempt to sell the property through a real estate agent to recover as much of their money as possible.
Differences Between Buying Short Sale and REO Properties
The above definitions make the two property options easy to understand. However, there’s still the matter of exploring how it affects the purchase decision. That’s why we have mentioned some of the key differences between buying short sale and REO properties. These will help you decide which option to choose to best suit your needs.
1. The Seller
The first difference between short sale and REO properties is the seller. A short sale property is sold by the debtor or the person who took the loan. Banks or lenders sell REOs through real estate brokers.
They have already gone through the process of seizing property from the defaulter, so they are the ones who need to take care of the property sale process.
2. Offer Approval Timeline
There are significant differences between offer approval times for short sale and REO properties. For short sales, since the debtor is selling the property to pay back money to the lender, any offer on the property needs first to have lender approval before the purchase can move forward.
In contrast, REO properties are already under the lender’s ownership, so no extra parties are evolved who can hinder the process.
3. The Pricing
The pricing for the two property types is usually beneficial for the new buyer. This is because banks and others sell these properties at a relative discount. The debtor selling the short sale has a limited time to work with, so they often offer a price that is a little lower than the actual value to capture customers as quickly as possible.
Lenders also don’t want to continue holding on to real estate properties for too long; however, they are not under the same restrictions as the debtor. Therefore, the pricing structure is often closer to the actual value. It may still be a better offer than what is available in the market since REO properties are those that never get sold at the foreclosure auction.
The trickiest difference lies in deal negotiations between buyers and sellers. As mentioned above, the debtor sells short sale properties to pay back the lender, so an offer needs the lender’s approval. An extension of this factor is that property sale negotiations are with the lender rather than the seller. This is because the lender is the primary beneficiary of the sale.
In contrast, there are only two parties involved in the case of REO, the buyer and the lender, who also owns the property. Therefore, there is no reason for multiparty negotiations.
Which Is Better – Short Sale or REO?
As explained through the definitions and differences, both short sale and REO have their respective merits and demerits. While short sale properties might behave a lower associated cost, you will need to be careful when suggesting the price to ensure your offer isn’t so low that they will immediately reject it.
Additionally, you will also need to be patient and work with a realtor experienced in negotiations to ensure they can manage the multiparty negotiations for short sale properties.
In contrast, REO property purchase is more straightforward since there are no loose ends about property ownership. There is no risk of delay, nor is there any ambiguity about property pricing; hence, the cycle more predictable.
However, you may not get as good an offer on REO properties as a short sale property since the lender will sell it at a higher price.
Therefore, the right option depends on the individual case. If you can afford to be patient and have an excellent negotiator on your side, a short sale might work for you.
Alternatively, you can opt for REO if you don’t have time and need a straightforward purchase, but money isn’t a problem.
Overall, there are considerable differences between short sale and REO properties. Each has pros and cons associated with it.
Robert DeFalco Realty has been working in the industry for several years, which is why we are experts in such cases. Our team will look at your requirements and limitations and provide the most suitable solutions for buying or selling a property.
If you want to know more about our services, please call us at 718-987-7900. We will be happy to work with you.