First time home buyers in San Jose CA often ask this question: is bank owned/foreclosure/short sale home the best deal for me?
The answer is "it depends on your individual situation". Let me explain.
To start, let's define what these terms are. Bank owned or REO (real estate owned) and foreclosure mean the the same thing, i.e. the bank has gone through the entire foreclosure process and now the bank OWNS (hence the term bank owned) and holds the title to a home. Short sale home is when the homeowner owes MORE mortgage than the market value of the home, and is unable to pay the mortgage due to financial hardship like loss of employment or health issues, and he/she is selling a home subject to the his/her lender's approval.
Furthermore, let's highlight some important difference between these two types of sales. Short sale takes much longer than a bank owed home because it takes time for a lender to process all the paperwork required to approve a short sale. On average, a short sale approval process can take anywhere from 90-120 days. In contrast, REO/bank owned homes, it is like a regular sale where the sellers (the banks) make decisions fairly quickly. On average, it may take 5-7 business days.
The waiting period on a short sale may not be negative if it fits your situation. In some short sale homes, with the right set of factors, it may be your best chance to receive VALUE for a home. 
Here is why: the banks on REO/Bank owned homes usually price homes below market value to stimulate activity and competition to bid up the price. In another words, the public perceives that bank owned homes are "good deals", therefore, it's common to have 8-12 offers on a bank owned home in a fair condition and decent location. As a first time buyer, the chance of getting outbid by cash investors is high. (see 3 tips on winning multiple offers)
On the other hand, short sale homes typically get resold few times before the final buyer locks in because many buyers are unwilling to wait the 90+ days. If the timing works correctly, you happen to be the buyer who finds a short sale that is approved by the bank with a certain price, and you and your agent move quickly, it may be the perfect situation in terms of finding value in the current market.
If you're curious to learn more how to find the best value in today's market, feel free to contact me! Or if you'd like to see a sample of foreclosure and short sale homes, click here.
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