Living in the Central Valley of California, and working primarily in Modesto, the majority of the homes that are for sale are either foreclosures or short sales. Every one in real estate understands what a short sale is, but many consumers are confusing bank owned homes with short sales.
A bank owned home is one that the bank has taken back from the owner. It has generally gone through the entire foreclosure process or has been given back to the bank through a deed-in-lieu of foreclosure (where the owner gives back the title to stop a foreclosure). The bank usually will have a short turn-around time for approval on selling the property.
A short sale on the other hand is when the bank accepts a payoff amount for less than the amount that is owed on the property. For example, a bank that has a loan amount remaining for $100,000. The consumer sells the home for $60,000. The consumer is short $40,000 of the amount that is needed to pay off the loan. The amount That $40,000 is what makes the home a short sale. The consumer still owns the home, but must have bank approval before a contract is made with the buyer. This also does mean if someone else puts in a higher offer before the bank approves the contract, that the bank can accept the other contract, and reject yours. This process can take anywhere between 30-90 days. It just depends upon the bank and their workload.
I hope this clarifies to the consumer the difference between a short sale and a bank owned property.