If you have a potential buyer who is interested in a couple of similar properties in the same neighborhood, what kind of advice do you give regarding the pros and cons of making an offer on a short sale property as opposed to an REO property? The short sale could tie up the potential buyer's deposit for weeks and the negotiation could be more difficult than dealing with a bank owned property. As long as the clients are willing to purchase the property "as is", it may be wiser to try and get a good deal on an REO rather than dealing with the short sale process (where the negotiated price could take a long time) and watch the REO property be sold to someone else. Any thoughts?
9 Comments on Advantages of buying an REO property compared to buying a short sale
FEB
15
2008
I don't tie up a buyer's EMD during the short sale process; I include an addendum that states it is understood and agreed that the purchaser's deposit check will not be deposited until the contract has been ratified and notice has been delivered indicating the third party has approved the contract.
I prefer REOs to short sales any day of the week; between listing agents who have no experience with short sales and sellers who don't qualify for a short sale, I'd rather work with foreclosures because the process usually seems to be more straightforward and it doesn't take nearly as long to get an answer from the bank.
I agree with Susan and 85% ofmy sales are REO properties.Waiting on a bank to give a answer on a short sale is very hard on the buyer unless they are investing etc.The banks will work with reasonable offers and even pay for home warranties if approached with complete packages and all terms spelled out but remember you will get the banks addendums which are written in the banks favor.There are some great deals out there and in my opinion a savey buyer with a agent that understands REOs will get the best ones.
99 times out of 100 you and your buyers would be better buying an REO over a short sale. I could really get into a rant of my general opposition to representing a buyer in a short sale (maybe I'll save that for one of my blog entries one day). One of the many things I do not like with a short sale is that you are dealing with 2 parties that want the transaction to take place but the judge, jury, and executioner for the transaction is a third or even forth party, really unrelated to the contract. If you can get signed agreements from the Lender as to what they will take, great but I can tell you from experience that most major lenders will not sign anything at any time during the transaction. They tend to want to keep their options open until the last possible minute. Another thing with short sales is that you are basically dealing with Monopoly Money. From the list price, to the negotiated price to anything else in the agreement, its all hypothetical. You can get a few weeks down the road until you hear from the lender and then they decide that what the seller and buyer want to do is not what they are willing to take short. In addition you have possible state and federal tax leans, 2nd mortgages/Heloc's, and Mortgage insurance Companies to deal (they all could throw a monkey wrench in the deal with). And this part effects the Sellers agent more then the buyers but if anything becomes "close" to what the lender is willing to do but just not enough, guess what the first thing they try to do to make up the difference, they try to slash the commission.
My vote is for REOs. As a listing agent for REOs and having done short sales, hands down REOs. Many conventional sale opportunities are not out there yet and we need to clear the REOs from inventory. Does not happen quickly with a short sale.
I just walked away from my first short sale because of the time delay/uncertainty. About three weeks after we submitted the offer, the listing agent lowered the sales price below what my client had offered. When I asked him what the lender's feedback was on my client's offer, he replied that the lender hadn't responded to the offer at all. I was curious as to why the listing agent was lowering the price if he had no idea what the lender was prepared to accept. After reading the comments above, I will try to stick with REO's. Thanks for the good advice.
It is sad to see that ignorant listing agents have given short sales such a bad name. It is true that times can be longer to get a response, but that is mainly the fault of the listing agent not understanding how to process a short sale from day one and not knowing how to work with the loss mitigation department.
A free tip, which most people will ignore becaues of laziness, we submit the hardship and financial package along with an offer from an 'investor' as soon as we get a listing. This makes it so that we have the file set up and the bank will order their valuation (drive by Appraisal, full Appraisal or BPO) before I have a serious buyer come along. Then, instead of waiting 4 weeks for the file set up and valuation to be ordered when we get a good offer, we just need to send in the updated HUD and new offer. This saves us from losing a good buyer that gets tired of waiting after 3-4 weeks. Make sure you always leave your short sale listing as active until the short sale is approved by the lender.
Also, I hate dealing with buyers agents who don't make sure their clients are prequalified for a loan, especially in this market. Those 'pre-approval' letters from mortgage brokers are useless. I know because I have done them in the past with just a credit report, 1003 and bank statements and not ever having selected a loan program.
I had a deal that I lost to foreclosure after getting 3 months extension on the sale date and got approvals with 2 different buyers who didn't qualify. Talk about a waste of time, I negotiated with the lender for three extensions and 2 approvals and because of bad agents and unqualified buyers, I didn't get paid.
Well I just put a bid in on a foreclosure for $5000 less than asking price with a pre-approval letter and $500 earnest and stating I will be paying 20% of loan.... What do you think will happen???
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I don't tie up a buyer's EMD during the short sale process; I include an addendum that states it is understood and agreed that the purchaser's deposit check will not be deposited until the contract has been ratified and notice has been delivered indicating the third party has approved the contract.
I prefer REOs to short sales any day of the week; between listing agents who have no experience with short sales and sellers who don't qualify for a short sale, I'd rather work with foreclosures because the process usually seems to be more straightforward and it doesn't take nearly as long to get an answer from the bank.