Friday, December 11, 2009

What is a short sale, REO or Foreclosure home?

So in addition to taking on learning all the real estate terms, contracts and procedures of buying or selling a home there are a slew of new processes taking place in light of the current market. It can be overwhelming trying to figure it all out!! But if you have a trusted realtor helping you through you can navigate the waters much more easily and successfully. Here are a few of the transactions that are frequent in our current market. Please feel free to ask any questions if you have them. It is likely other readers are wondering the same thing!
Short Sales- Often buyer think a short sale means a sale which will close in a "short period" of time. This is very much not the case..a short sale occurs when a seller is upside down in their mortgage (owing more for their home than whats it is worth). In this case if the seller needs to sell and can not sell for enough to pay off their mortgage and can not come up with the money for the balance they may consider a short sale. This usually occurs once the seller has fallen behind on payments and is in default.

In a short sale the home is put on the market for what the seller and realtor determine is market value (occasionally much less than market value). Once they recieve an offer they submit the offer and several financial documents from the seller showing why he can not satisfy his mortgage and prrof of the reduced value of the home in comparison to what is owed. After this mountain of paperwork is submitted to the lender you wait. The file appears to go into a black hole for several weeks or months while bank try to catch up with the onslaught of short sales they are processing. It is likely each processor has 100-200 files he is working on at the same time. At some point the bank will assign a negotiator and order BPO'S (broker price opinion).For a BPO a bank will hire 2 or more realtors to go see the property and prepare a market analysis with their opinion of a fair price. With this information the negotiator will determine if it is in the banks best interest to accept the "short sale" and let the seller out of his mortgage even though the bank will come up "short" their money due or foreclose. The seller does still own the home through this whole process until it is foreclosed. Although the seller may have approved your offer in a short sale you do not have a contract until the bank or mortgagor accepts in writing.
When offering on a short sale it is important to have a realtor working for you to find out how likely you are of getting your offer accepted. Sellers can accept multiple offers on their home and they can choose whether to submit those to the bank or not. Some realtors will only submit the first offer to the bank and hold the others as back ups. Once the bank approves the first offer if the first buyer can no longer complete the sale they will go to the second offer.
Some realtors will send all offers to the bank and the bank will choose from the multiple offer or ask for highest and best which creates a blind bidding type situation.
I can let you know what stage the short sale is in to create realistic expectations as to how long you may wait and if you have a good chance at getting the home.
The most frusterating thing on short sales for buyers and realtors is the waiting for the bank to respond. There are no threats you can give to make them respond quicker. They will simply take as long as they'll take and you either wait for the deal or not and they'll take the next buyer.
Important for buyers to realize is that until the bank accepts your offer you do not have a valid contract. You are free to move onto another homeif you wish. However if you no longet intend to purchase a short sale you have an offer on it is good form to let the sellers agent know so they can get another offer if needed for their seller.

REO or Foreclosure- these are home that have already gone through the foreclosure process and the bank is now the owner of the home. The banks do not want to be property owners so they are very motivated to get the home off their books as soon as possible. Many buyers think they need to use gimmicky websites and such to find these homes but the truth is bank use realtors to sell their homes and they are listed through the MLS just like any other home. REO homes can close as quickly as a tradtional sale. You can expect the bank to take 3-5 days to respond to your offer. These homes if priced well go quick! So if you see one you like, walk through and offer quickly before you are beat out. There are often multiple offers on the best ones. You will get the best price by getting it under contract quickly to avoid a bidding war with other buyers. Banks are looking for the best price with easiest terms. So make your offer clean and strong to lock in these deals quick!

If you have any questions please feel free to post and I'll be happy to answer. If you are interested in seeing any homes let me know I'll be happy to help you find just what your looking for at a price you'll love!


  1. Melanie,
    It is great that you have the ability to see potential in what so many find worn out. It takes a special eye and a special passion to be able to share the architectural wonders of the past. I've sen your renovations and I know that you understand how to keep them true to to the style of the home and still modernize it for the current consumer. I hope you are able to sell a lot of those beautiful older homes that exist in Utah. Good luck!!
    Lisa Schmidt

  2. Really a very informative and interesting post.It provides information .The information was very helpful for me.Thanks for sharing this post.

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