Short Sales and REOs: What’s The Difference?

"The troubled real estate market has led to an influx of distressed homes, which now make up as much as half of the inventory in some areas. Thanks to the attractive prices being offered, many buyers are snapping up homes they would otherwise not have considered. Unfortunately, not many of them really understand what they’re getting into. For instance, what’s the difference between a short sale and an REO—the two most popular types of distressed homes today? Here’s a quick guide to help you better understand your choices.



Short Sales and REOs

A bank short sale is a home that’s priced below the seller’s mortgage balance, because the balance exceeds its current market value. Banks agree to short sales because the only alternative is often foreclosure, which will cost them even more. REOs, which stand for real estate-owned, are homes that have gone into foreclosure but have been repossessed by the bank because they failed to get bids at the auction. Both are sold at significant cuts and are listed on the MLS just like non-distressed homes.

Selling Prices

A short sale is limited by the seller’s outstanding balance; it cannot be priced more than what is owed. Generally, a bank short sale sells for 85% to 95% of the market value, although some can sell for as low as 60%. REOs are priced according to market values as well, but banks can also take into account any repairs they’ve made prior to listing. Since banks sell REOs solely to get the property off their books, they are priced to sell fast and often offer good deals compared to a bank short sale.

Buying Process


This is probably the biggest difference between an REO and a short sale. In a short sale, the buyer makes an offer to the seller, but it’s forwarded for the bank for approval. The lender has the final word on whether or not the bank short sale can push through. An REO, on the other hand, is sold much like a regular sale, with the bank acting as the seller. They usually take faster because the bank is much more willing to sell.
Where To Find Homes


One can find a bank short sale or REO on the MLS and other mainstream listings, but they can be hard to distinguish from regular homes. Laws have yet to be passed requiring the identification of short sales and REOs. Until then, the best way to find a bank short sale is to look for wording that says a “third party,” meaning the bank, has to approve your offer. REOs can also be found in banks’ private listings, which are usually available on their websites."

How A Short Sale Agent Can Help You

Many struggling homeowners have, at one point, considered taking matters into their own hands and pursuing a short sale on their own. After all, it’s hard to see the sense in paying a third party when you’re already about to lose your home. But a short sale agent is often worth every bit you pay them, sometimes more. Here’s how you can get better short sale results with an agent and how you can build a good relationship with them.

Play By The Rules

A Short Sale agent will know local laws better and help you use them to your advantage. For example, a short sale under the government program HAFA (Home Affordable Foreclosure Alternatives) isn’t the same as lenders’ private programs. Depending on your state, there may be rules on how long a short sale can take, how much can be forgiven, or how borrowers are assessed. A short sale agent can help you stay in line and avoid problems caused by non-compliance.

Know The Market

Short Sale Sellers seldom know how the market works, and this can lead to bad decisions. You need at least a working knowledge of your city’s real estate market and home values to make a strong case for your lender. With a short sale agent, you can do your research and use the information wisely. They can help you negotiate the short sale with your bank and back up your case with solid facts.

Get Your Home Seen And Sold

The primary role of a short sale agent is to list and market your home. You can do this on your own, of course, but an agent who’s been in the short sale business for a while will have useful connections that can help the sale along. Besides putting your home on the MLS, a short sale agent will get word around to buyers and their agents, help you prepare the home for viewing, and maybe schedule an open house.

Read Before You Sign

Real estate contracts are always complicated, and that’s even more so in a short sale. A short sale agent can explain each part of the contract to you and make sure you know what the terms are. If there are any vague parts, you can clear it up before proceeding with the short sale. With a short sale agent, you don’t just sell your home and get back on track sooner—you also get valuable tools that you can use in the long run.

What will happen to Credit Score after doing short sale.

This is a very common question asked all the time as far as what effect it will have, after doing short sale on your record will affect your credit score and credit report. Let us first understand what a short sale is before identifying its effect on our credit. A short sale happens when a lender agrees to accept less than the amount owed against the home because there is not enough equity to sell and pay all costs of sale.

A short sale in general will affect your credit report less than a full foreclosure or deed in lieu of foreclosure. You can have a "settlement paid in full" negotiated with the lender, and obviously this will show better than simply doing nothing. No one may know exactly to perfection what the difference is in points on how your credit score would be affected whether you do a short sale vs. a foreclosure. Experts say that the damage that the foreclosure do to your credit is the same with what short sale on credit can do. This is because a short sale is part of the definition of foreclosure. For credit bureaus and lenders, this is a serious delinquency. If you are behind in payments and you owe too much on the house, what choices you really have anyways, if you do have any other choice, it is still better to choose for a short sale for various reasons. First, you can benefit from the proceeds even if it is not much. Another, you will be able to avail of a mortgage loan after two years, compare that to the five years you have to wait if your property is foreclosed. In addition, this helps the lenders too. Short sales can minimize the losses that the lenders will endure.

If you have lots of money, assets, reserves, and a high net worth and you just don’t feel like making payments or feel like paying down your principle balance, your lender won’t want to do a short sale. They will first want to get financial info from you, and a written hardship letter. This will make it quite clear to the bank that your only option is some help from the lender. This is where you see a seller that has a property listed on the MLS reading as "subject to bank approval". A full foreclosure can stay on your credit for up to 7 years. Freddie Mac recently passes some new laws for their company that would not allow some borrowers to finance a home for up to 5 years through them. This was more in the cases where people were just walking away, and didn’t have a true hardship case. Currently you can get a FHA loan where your last foreclosure was only 3 years ago. That’s how it is in the current market. You can always just go buy on a contract for deed, get into a rent to own, or rent a property while you are improving your credit. As a general rule you can still get loans with 30 day late payment on your record, it becomes less likely with a 60 day late, and very hard with 90 day late mortgage payment, etc.

It is better to consult your attorney and your accountant when you have to deal with selling your property in Short sale process. They can give you a good idea on how your credit score will be affected by doing a short sale.

For More Information Visit: - http://www.shortsalecredit.net