Tips for Advising Investors on Short Sales vs. REOs

It’s not as if one is intrinsically good while the other is bad. Property deals abound right now for real estate investors. However, knowing the ins and outs may keep both you and your investors from being surprised by things like hidden fees (penalties, unpaid taxes, etc.) as your property sale moves through the closing process.

REO or bank-owned properties have completed the foreclosure process and may be in worse condition than a short sale property. While they often close faster than a short sale, lenders are sometimes not willing to negotiate the price down very much. Even worse, the generally out-of-state bank is sometimes out of touch with exactly how much home values have dropped in a given area. It can then be an uphill battle to get the bank to get real on pricing. Other times, the bank wants to recover its costs of going through the sometimes lengthy foreclosure process and will attempt to recover some or most of its costs. Hidden fees like penalties and unpaid taxes tacked on to the sales price can be the result.

With a short sale, an investor has an opportunity to potentially purchase a home in better condition. This may mean less rehab work to either resell the property or rent it out. The faster the turnaround, the bigger the profit potential for your investor.

While the short sales process can take longer than buying a bank-owned property, most lenders are already buried under the number of REO properties on their books and don’t want to add more to that total. By purchasing a short sale before the mortgage provider has to go through the time, expense, manpower and possibly legal costs (for judicial bankruptcy states) of the foreclosure process, investors stand to get a pretty competitively priced deal. Banks tend to take less of a loss on short sales than foreclosures.

With all the above factors considered, I am a believer in short sales when working with real estate investors and for my own investments. To your short sale success!

We are going to get down-n-dirty on a FREE webinar to discuss the REO vs. short sale battle.