Milpitas CA. What is the difference between REO, Short Sales and Regular Sales?

Milpitas CA.  What is the difference between REO, Short Sales and Regular Sales?

An REO is property that has been foreclosedon by its lender.  The title has been transferred to the foreclosing entity - the lender, which is normally a bank.  Presently, banks foreclose on a property because either the homeowners can no longer maintain monthly mortgage payments or because the homeowners simply walked away from the property because it is now worth less than what is owed (i.e. borrower owes $500,000 on a property that is now only worth $300,000 in the market).  Aside from equity loss, banks spend a substantial amount of money to foreclose on a property and maintain it until it is sold.  Hence it is in the best interest of the bank to “unload” or sell the REO as quickly as possible to avoid further losses.  In a down market, banks have to sell low.   Therefore, REO pricing is very aggressive and are normally priced at the lower end of a price range.  An REO can close within 15 to 30 days.  The disadvantage of an REO is the property will have deferred maintenance issues and most would be in poor to fair condition, although most bank owned properties today are being rehabilitated by the banks to maintain the integrity of the neighborhood.  There is Competition from other buyers for REO’s and it can sometimes be fierce. 

A Short Sale is property that has not been foreclosed by the bank or lender; and, the same conditions exist where the homeowner may be “upside down” (what is owed is larger than what it’s worth) on the property or the homeowner can no longer afford to make monthly payments.  To avoid foreclosure, the homeowner can elect for a short sale.  A short sale or “short pay” happens when the bank or lender agrees to sell the property at an amount less than what is owed (debt is $500,000 but market value is now $300,000).  The homeowner is forgiven the remaining debt.  In this case it is the bank that has final decision on the sale (with the concurrence of the homeowners).  Banks allow short sale when it determines it can minimize losses without having to foreclose.  Pricing can be at market or a little below.  A short sale can take a minimum of 3 months to 12 months to close, if at all.   Condition of short sale properties would be very much like REO’s – deferred maintenance issues and most would be in poor to fair condition.  There is competition from other buyers especially if the property is in good condition or in a good school location; but, mostly not.

A regular sale is property that is being re-sold by its present homeowner.  Because real estate markets are very much affected by REO’s and Short Sales, regular sales have to compete with lower priced REO’s and Short Sales.  Regular Sale pricing is now more aggressive and competitive.  However, pricing is still at the median or higher accounting for homeowner pride.  The advantage of a regular sale is it can close fast, the property is normally in good shape (to compete with REO’s and Short Sales that are sometimes vandalized or have deferred maintenance issues); and, there is less competition from other buyers.

For more advice on what is the difference between REO’s, Short Sale and Regular Sale in Milpitas CA, call (408) 316-0793.