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Difference Between Foreclosures (REO) vs. Short Sales vs. Regular Sales - Real Estate Tips

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Published on Dec 29, 2012

For an experienced SF Bay Area real estate agent visit http://iLiveInTheBayArea.com
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One of the most common questions asked of me is if a buyer can get a better deal by buying a foreclosure rather than a short sale or regular sale. The immediate response to my buyer is if they know what the difference between all three of them are? ...usually they don't -- which is completely okay. I'm going to clarify the difference for you once and for all so you know the EXACT difference between all three.

The two primary differences between all three types of sales are the length of time it takes for your offer to get accepted and the amount of information you will be given by the seller. First is the regular sale which is what most people are familiar with. You have a buyer who makes an offer to a seller or sellers.

The sellers usually take up to a week or so to review the offer and let the buyer know if its accepted, rejected or if there's a counter offer. A foreclosure works in a similar fashion. The difference is that you aren't dealing with a seller you might be used to. You're instead dealing with an asset manager of the bank who's an organizer and number cruncher.

The BIG difference between a regular sale and a foreclosure is the information they will provide to you as a buyer. Because the foreclosure is a bank owned property and they've never stepped foot in the house, they have NO idea what's going on, whereas the regular sellers will.

In the state of California, owners are required by law to answer multiple questions about what they might know about a property. However, banks are exempt from these questions. In fact most banks have you sign paperwork from them specifically stating you cannot sue them if you find out something is wrong at a later date!

Now the most interesting one -- the short sale. A short sale means that the owner of the property is underwater on their loan. For example...The owner paid $500k for a house and also got a loan for the full $500k, and currently the home is worth $250k.

Obviously in 99% of cases the owner isn't going to come up with the difference...be it because they don't want to or because they simply don't have the money to do so. If the owner knows they are no longer able to afford the property they put it up for short sale. With a short sale, the sellers are still responsible on answering all of the questions on the multiple disclosure forms.

However, the big difference is the time frame. A short sale can actually take on average 1 to 6 months. Banks have gotten a lot better at approving them in a timely manner, but you're still seeing time frames of about 1-3 months. Luckily, if a short sale has ALREADY been APPROVED, the time frame drops down to about 2-3 weeks, which isn't nearly as long!!

Now the big questions...which one of the three types of sales are the better bargain???...the foreclosure? The short sale? The regular sale?? The answer is it depends. The way banks price foreclosures is simple. They ask the local agent that's going to sell the property to estimate what the value is. The big question the bank's always have is, "How low do we have to go to sell this property in under a month?"

...The answer is almost always "subtract 5%!" So here we have a bank that's going to give about a 5% discount...the reason they don't mind is because at this price range they EXPECT to have MULTIPLE OFFERS...if there's multiple offers, what does that do to the price...? It pushes it upward!

A regular sale may have the same thinking, but not always. Pricing a property as a seller and agent is absolutely key. Most sellers want to price it properly and get one to three seriously interested buyers and work with them on getting close to asking.

Then there's a few that like to overprice to test the waters and leave room for negotiation -- which almost always results in a property that lingers on the market and never gets sold...or gets sold for much much less than they could have gotten in the first place.

Finally, the short sale. The great thing about the short sale pricing is that 99% of the time they don't care what the property fetches for one simple reason...the seller isn't going to make a single penny from the sale!!! In almost every scenario of a short sale the seller simply wants OUT of the situation.

If you're selling your property and you know you're not going to make a single dollar, are you going to try and get the most money for your place or are you going to try and sell it as quickly as possible? Now you understand that just trying to pick out a foreclosure might not be the best bet. You have to look at ALL your options. The only variable here is if you'd be willing to wait a while for a short sale to go through. ...now that's good to know.

Contact Davide Pio Today | http://iLiveInTheBayArea.com | 510-815-2000

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