What’s the Difference Between a Bank-Owned Property and Short Sale?
“What’s the Difference Between a Bank-Owned Property and Short Sale?”
You know what? If you’d asked me that question 18 months ago, I’d have looked a little bewildered. Oh, I’m sure I’d have come up with an answer, but it probably wouldn’t have been anywhere close to correct! Ah… the days… where a Denver real estate agent didn’t have to KNOW the difference between a short sale and a bank-owned property (also known as an “REO”)!
But, alas, real estate agents in most parts of the country have had an un-asked-for education on the various types of distressed property situations, and the purchase and sale implications of each. It’s almost hard for me to imagine NOT being too-intimately-familiar with the process of a short-sale, or the challenges involved in purchasing a property owned by a corporate entity.
Sigh.
Anyway, to answer the question… what’s the difference and why should you care?
Well, if you’re not in the market to buy or sell a home anytime soon, then you probably don’t care. Just skip the rest of this article and we’ll catch up later. But if you are venturing into the real estate market, either as a home-buyer or seller, you definitely will want to read on.
A short sale listing is a property that is on the market for less than the current homeowner owes on it. For example, the mortgage might be $200,000, but it’s listed for sale at $160,000. Why on earth is it listed so far below the mortgage? Well, ‘cause that’s all it’s worth. It ain’t worth the $200,000 the homeowner owes on it. Bummer.
In this situation, the homeowner and his REALTOR are trying to generate an offer on the property, at the current market value, whatever that is. When and if an offer comes in, the offer will be presented to the homeowner/seller’s lender (e.g. Bank of America, GMAC) and hope that the lender will agree to take a loss. The lender is under no obligation to do so! But, to grossly simplify the process, “it doesn’t hurt to ask.”
In a short sale situation, the homeowner stills owns the property. He has not been foreclosed on. However, because the lower offer will need to be approved by the lender, the lender is a very important player in the negotiation.
A bank-owned property (sometimes called a “foreclosure” or “REO”), on the other hand, IS owned by a bank, lender or other corporate entity (for simplicity, let’s just call ‘em the “bank”). All offers and negotiations are presented to and handled by the bank, who has no emotional attachment whatsoever to the home. However, because the seller (the bank) actually has all decision-making authority, it’s not all that unlike a traditional retail sale with a “normal” homeowner seller.
There are whole books written about the ins & outs of short-sales and bank-owned properties, so I won’t even begin to address the various issues surrounding these types of real estate transactions here. I’ll just say that, of the two types, in my experience, a bank-owned property is MUCH more likely to end up at the closing table than a short sale. MUCH.
So, if you feel your real estate agent is trying to steer you away from short sale properties, you’re probably right, and please don’t think your agent is just being lazy. They’re frustrating for everyone involved, most of all YOU, and we really hate to see our clients frustrated.
The good news is that in Denver, we have the best of all worlds. If you want to participate in the distressed housing market, we have plenty of inventory for you (although in the lower price ranges you may very well be competing with investors), but if you don’t; if you just want a sweet house in a good neighborhood at a reasonable price, we have lotsa’ that, too.
