Private Sale, Short Sale, Forclosure or REO What Is The Best Deal?

Real Estate Agent with Keller Williams Realty- North Shore

The answer is .... All Of The Above!!!

First and foremost, in order to get the best deal, the property itself must meet the majority of your needs and have the fewest drawbacks. If you can find a private sale that meets your needs, but costs more than an REO that would take a ton of money to bring back to life, then the private sale is the better deal. It may make more sense to wait the 3-6 months to get a short sale property that meets all of your needs, rather than closing quickly on something that doesn't.  

The bottom line is to set your property profile as tightly as you can, and keep your search open to all categories. This will allow you to find your specific market. If there is nothing of interest at this point, you can slowly start expanding your market by removing/changing the profile.  This approach will help you to find the best possible fit without having to look at 30 homes before finding something.

It is true that depending on what your situation is you will more than likely be viewing homes in one or two of the categories listed, however you must always be ready for the rare find that meets a specific need for you in any category.

 First let's distinguish the difference between the the categories, add some sub-catagories and discuss who is more likely to find suitable property in each.

Private Sales:  Owner is selling the property and all mortgages/leins will be paid off by the owner and no bank approval is needed.    Sub-categories: FSBO's, Estate Sales, Up-graders, Down-sizer and Relocations.

The majority of primary resident home buyers are going to be able to find what they want in the private sale market. Most will be financing a portion of the sale and the lender is going to make sure that the work is done to assure that there are no future surprises.  The majority of your closing costs will go to making sure that you are getting a good deal. (appraisal, title search, research back taxes, smoke/co detector certificate etc...)  Normally a closing can take place within a 30-45 day period after the offer gets accepted.  You will have the opportunity to have an inspection and can usually negotiate any problems that arise with more ease.

Short Sales: Owner owes more than the market will get for the property and has encountered a hardship that will result in a foreclosure if something can't be worked out. Any accepted offer must be approved by the bank before closing.   Sub-categories:  Approved Short Sales,  using a private negotiator, not using a private negotiator.

If successful, a short sale is your best opportunity to make a great deal.  You should have an agent that understands the process and isn't afraid to force the transaction to be run in a way that will increase the odds of success.  If you get a bank approval in 90 days, that would be a quick sale in today's market!!   Whether or not the listing agent is relying on an experienced Lawyer or Negotiator to get the proper information to the Bank can make a huge difference.  You need to be assured that everything is in place before taking yourself out of the market for 90-180 days.   An approved short-sale means that the bank approval process is over and the bank has come up with a price that it will accept. This makes the decision a lot easier; give them what they want and it will close like a normal deal, try to go in lower and start the whole process over again. 

Foreclosure (Auction): The bank has finished the foreclosure process and will attempt to auction off the deed prior to taking possession. 

This is a category better left for professional investors that understand the risk involved and have the systems in place to assure that all potential costs are investigated and foreseen before determining a price. (outstanding taxes, liens, cost of eviction,etc...)

I can not over play the amount of risk involved in buying a property at auction.  You need to review the specific terms of every auction but here is the most common scenario.  You will need to bring a certified check to be used as a non refundable deposit if you are the winning bidder.(usually $5000). The bank will then give you a period of time in which to complete the sale,(normally 30days). The bank will be represented at the auction to make sure that it gets the price that they want or they will take possesion of the property and get it ready to be put on the market as a REO (Bank Owned) Sale 

Many times these properties are auctioned with the owners (now tenants) still in the property. Potential bidders sometimes don't get an opportunity to see inside the house prior to the auction. Even the most prepared investor may not know if he/she has made a great deal until after the sale.

REO(Bank Owned) Sales: Foreclosure process has been completed and property failed to sell at auction. The bank has taken the necessary steps to put the house on the market.

With the large REO inventory in today's market, most Buyers will come across a few that match their property profile. 

By the time these hit the market, they have been through a 12-18 month foreclosure process.  Normally there has not been a lot of general maintenance done during this time. While they tend to need more work, I have sold REO's in move-in condition.  A quick drive by will go a long way in determining your interest.

These transactions are a combination of an approved short sale and a private sale.  If you offer what the bank is asking, you can have this wrapped up as soon as your lender is ready to close.  You should definitely have a home inspection done,however; the bank will not negotiate the minor issues that arise in most inspections.  If there is a major structural or  safety issue uncovered that will restrict their ability to sell the property in the future they may be willing to address the sale price. 

Most will make you sign a pre written Purchase and Sale Agreement and will allow no changes to be made to it. I strongly advise you to have a Real Estate Attorney review this and explain it to you. Even though they can not negotiate changes, this will let you know exactly what your responsibilities will be in this transaction.

If you have been looking or plan to start looking for your BEST DEAL and would like my help, please don't hesitate to Contact Me 


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Mike Giles

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