Are you ready to buy an REO or Short Sale?
The answer to that question is another question you have to ask yourself…How patient am I? In this difficult market many buyers look for or find themselves involved in a short sale or an REO with the idea that it’s a good deal. It can be but what you are not paying in price you will make up in time, energy, effort and potential frustration.
What are short sales & REOs? A short sale involves the owner of a home who is trying to sell their home for less, or “short”, of the loan amount. While you are dealing with the owner of the home, the transaction needs bank approval since they are losing money. An REO home, or Real Estate Owned, is a property owned by the bank after a foreclosure sale. In this case you are dealing directly with the bank as the seller.
How does dealing with the bank change the dynamic of the transaction? First thing to understand in dealing with the banks is that they are on their own time line. Banks have numerous properties to deal with and it makes sense they want to get rid of them but because they have so many no one deal is particularly important. In my own experience you can see a bank take weeks if not longer just to let you know if your offer is accepted. I’ve heard stories of listing agents working with a bank and having to submit the same offer over 4 times before the bank would even acknowledge it came in. By then, the buyers had walked.
Even when making an offer, as the buyer you have to understand that you are going to be doing it on the bank’s terms. They have no emotional investment; the home is an entry on a spreadsheet. The bank is trying to stop the financial bleeding and may counter on terms that don’t necessarily reflect the current market value. Even once you are in contract new terms and addendums may pop up. The level of frustration and work often depends on the quality of the listing agent as well as which bank is involved.
While I certainly wouldn’t discourage anyone from buying a short sale or REO, a buyer must go into it understanding that it will be no walk in the park. You must keep site of the goal of buying the property and realize that once you’ve closed (and some of them do actually close), all you went through will be behind you. You will have your new home and potentially more equity for your troubles.
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