Short Sale Vs. REO (Bank Owned) Homes – what’s the difference and how do you choose? These are questions that come up for a lot of people currently in the market to buy a home. It is important to understand the difference between these two types of properties that are getting a lot of hype in the real estate market today. These types of properties are a high percentage of the inventory in the market and they end up being a better deal than a lot of other properties out there. For a buyer, how do you know which to choose? They are both reasonably priced and in a lot of cases they will both need some extra attention, due to the fact that the previous owner was not able to keep the house up. Aside from these two aspects of the house there are a lot of factors that go into purchasing a Bank Owned or a Short Sale property.
What is the difference? A Short Sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance owed by the owner on the property. Bank Owned or Real estate owned (REO) is a class of property owned by a lender—typically a bank, government agency, or government loan insurer—after an unsuccessful sale at a foreclosure auction.
Recently I had the pleasure to work with The Fitzpatrick’s, a married couple, looking to purchase their first home in the US. During our search we looked at a lot of homes. We put multiple offers on both types of homes, both Short Sale homes and Bank Owned homes and eventually ended up closing on a REO home owned by Fannie Mae. The Fitzpatrick’s had owned a home in Ireland when they lived there three years ago, but buying in the US in this market is definitely different, I asked a few questions about their home buying experience to help others get the real world perspective on the current real estate market and understand the difference between both types of homes:
Phillips Real Estate Services (PRES): What were you looking for when you started your home search?
Fitzpatrick’s (FP): We were looking for a lot – a house with at least three bedrooms, a large backyard, located on a non-busy road, within one particular school district.
PRES: If price was a factor, what were you willing to compromise on to get the right price?
FP: We really didn’t want to compromise on anything! I suppose we would have been OK with a different school district, and maybe a smaller backyard. Lucky enough, we didn’t have to compromise on anything.
PRES: What were some of the challenges when trying to purchase a Short Sale home?
FP: There were many. Most of all, everything seemed to take a really long time. We kept being told that everything was moving along but that short sales by nature take a really long time. The frustrating part was that no one – not the seller’s agent or not the lawyers handling the short sale – could give us any indication of how long a long time really is. Not having any timeline made it difficult. We were willing to wait but the lack of communication/lack of movement on our short sale made it difficult. We finally decided to back out when the lawyers handling the short sale informed us that the entire file had to be thrown out because of one minor outdated piece of paperwork from the seller. At that point, we were told that we should expect to wait 6 months to hear if it was approved. After already waiting 6 months, we decided this was too long and withdrew our offer.
PRES: What were some of the benefits of purchasing a Bank Owner/ REO home?
FP: The process is much faster. Although there is more paperwork when buying a bank-owned home, everything moved much faster and the bank/bank’s agent were in constant communication with us. We submitted our offer on a Friday, were asked for a final and best offer on the Sunday and heard on Monday that our offer was accepted. About 30 days later, we had the keys.
PRES: How did your home buying experience differ than your previous experience in Ireland?
FP: It was really pretty similar to buying our bank-owned property here in terms of straight-forwardness and the time it took to close. The short sale process, however, was much different.
PRES: What advice would you offer to other first time home buyers?
FP: Think about your timeline and what works for you. Also, don’t compromise on anything. If you’re willing to wait, you will get a great house. Our bank-owned property is actually a much better fit for us, so although we were very disappointed when we withdrew our offer on the short sale property, it definitely worked out for the best.
PRES: Anything else to add?
FP: Now is a fantastic time to buy a home. If you’re thinking about moving, especially if you are a first time buyer and don’t need to sell a property, you will find some great deals out there. We are absolutely thrilled with our house and can’t wait to move in!
It was wonderful working with the Fitzpatrick’s and we are so pleased that everything worked out for the best! Good luck with your new home and thank you for sharing your story.
Here they are in front of their new home!