Buyers 101 in todayβs real estate market
Short sale, REO, bank owned, foreclosure, pre-foreclosure. There are so many terms that have become common in today’s real estate market, and many buyers don’t understand what they mean or how they might affect them when buying a home.
As a result, I’ve found myself doing individual Buyers 101 classes for first time buyers. As I do this, I’ve begun to realize that even people who have bought before may not understand much of what is happening in today’s market, and so I decided to do a quick Buyers 101 for Today’s Real Estate Market.
In many areas of Orange County, California, distress sales (REOs, bank owned, short sales) make up approximately 66% of the market.
Because of the prices on distress sales and the percentage they have of the market, these are often the ones on which buyers first contact me.
I find that many are confused by the terms REOs, foreclosure, bank owned home, and short sales. Many people think these are all the same thing. They aren’t.
REO stands for Real Estate Owned. This is a home which the bank foreclosed on and now owns.
Bank owned and foreclosures are other terms for homes that are owned by the bank.
A short sale, sometimes called pre-foreclosure, is a home where the current owner is not a bank but rather the person who borrowed from the bank. In this case, the current owner’s home is worth less than they owe to the bank (or less than they owe to the bank plus the costs to sell), so they are asking the bank to accept less than it is actually owed when the home sells.
Buying a short sale can take longer than buying an REO because the price of the listing is one that the real estate agent believes is fair in the current market, but not usually one the bank has already agreed to accept. It can take anywhere from a couple of weeks to a few months to get an accepted short sale, if they are accepted. Because of this, there may be less competition for a short sale than an REO, but it depends upon the home.
Whenever my buyer decides to make an offer on a short sale, I counsel them that they will need to be patient if they are going to see it through.
For more information on short sales in general see Do You Need a Short Sale or What is a Short Sale.
With an REO, the bank has already determined a price they will accept when they list, so they tend to be a lot quicker than a short sale.
With both REOs and short sales, the buyer will often find that the banks and/or sellers are unwilling to make repairs, so it is extremely important to have an inspection done of the home and understand that you are likely buying the property “as is”.
Either way, these homes can be good deals, and there may be a great deal of competition for them or they may languish on the market depending upon the condition, the price, how quickly an offer will be responded to and other factors.