Some months ago, I had a long conversation with a real estate investor about short sale properties vs. REO properties. He said he didn't think there was much in the way of savings derived from buying homes through short sales anymore. Instead, he said it probably made more sense for him to buy foreclosed homes and wait patiently to buy them through lenders' REO Agents.
I thought that was it. I thought he had made up his mind on the subject and was just trying to politely tell me that he would no longer be needing my services, but then he added, "So what do you think about this? Do you think I should start buying my investment properties as REO's?"
With me being a Short Sales Specialist, I'm probably a bit biased on the advantages of buying short sale properties vs. REO's, but, in any event, here's what I basically told him.
There are both advantages and disadvantages to buying short sale properties. The major disadvantage of buying a short sale property is that there may be undisclosed liens or problems with the title. When you buy a preforeclosed property; you're buying it as is. There is always a risk that the distressed seller may have acquired liens (e.g. unpaid hospital bills or unpaid contractors' bills for home repairs) while they owned the property.
Another downside to buying short sales is that they frequently take a long time to get approved and to close. Most short sales take on average 3 to 6 months to close, and if you don't have the patience of a saint, you're probably going to lose interest in buying the property before too long.
However, just like there are risks involved in buying short sale properties there are also benefits. One of the biggest and most important benefits is the fact that short sale properties are usually cheaper to acquire than REOs. If you wait for the property to be foreclosed on and placed on the lender's REO list, then you're going to usually pay more to own the property.
The reason for this is the fact that by time the lender legally takes the property back he has already incurred an excessive string of additional fees, e.g. property taxes, HOA dues, hazard insurance premiums, mortgage insurance premiums, lost interest, attorney fees, property maintenance costs, real estate commission, etc.
Naturally, the mortgage company plans to recoup these fees, and to help accomplish this goal, the lender subsequently raises the sale price of the REO property. Depending on whether you're buying foreclosed property in a state that practices non-judicial foreclosures or judicial foreclosures, you could unknowingly end up paying an extra $10,000 on up to help reimburse the lender for these expenses.
Well, that's my take on the subject. If you disagree, please post your comments. I'm really curious to hear your thoughts on this subject.
"Short Sales: Reason Why They Take So Long," from Tracy Miller's Blog: Short Sales & More! (Material Copyrighted 2008. Tracy Miller; All Rights Reserved.) Tracy's blog published at Active Rain Real Estate Network (www.activerain.com/blogs/tracyshortsales). It is permissible to reprint, repost, reblog this material.