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Resales, Short Sales, and REOs

April 8, 2009
Jay Bailey The Bayne Group

Jay Bailey The Bayne Group

Submitted by Jay Bailey, REALTOR®

The current housing market is composed of three distinct categories of real estate, and the division between them is deeper than ever before.  Below are categories and about the advantages and disadvantages of buying or selling in each market.

1. Traditional resale properties.
2. Short sale properties – sold by homeowners that owe more on their current mortgages than the home is worth—such as a home with a mortgage of $600,000 whose owners are trying to sell it for $525,000. 
3. Real-estate-owned properties (REOs) –also known as bank-owned properties, are homes that have been foreclosed on and are being sold directly by the lender. 

Condition of Property

Resale properties are typically in great shape and well-maintained because owners want to sell them for as much as possible.

Because short-sale owners aren’t getting any proceeds from the sale, they rarely spend any time or money fixing problems or maintaining the home.  For example, it is common to see short sales with leaks, soiled carpets, chipping paint, and overgrown yards. 

REOs are usually in even worse condition because they haven’t been lived in for months and because banks rarely spend money fixing problems when they have hundreds of foreclosures to deal with.  I’ve seen foreclosures that have been literally stripped—appliances, fixtures, cabinets, lighting, flooring, and anything else that could be removed were gone.

Transaction Time and Energy

Resale property – The transaction is typically quick and easy: a seller accepts a buyer’s offer, the buyer gets financing and has the house inspected, and they meet at the closing table to exchange title and keys. 

Short Sale – there are often numerous liens on a short sale. Each lien-holder has to agree to the sale and remove the liens before the transaction can be completed.  If a house has numerous mortgages, there are usually different banks involved.  The process of getting the liens lifted and having the different parties agree to the sale can take months and months.  

REOs tend to be a bit easier because the primary lender is the only seller, but it still can take a while for a bank that is juggling hundreds of REOs to agree to a contract.

Value Proposition

On the other hand, short sales and REOs are usually substantially less expensive than traditional resale properties.  They can be a great opportunity for buyers that have the extra time it takes for the transaction or are willing to spend some money to fix up a poorly maintained house.

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