Bank Owned Versus Short Sale – Pros & Cons

12 Nov

Bank Owned Properties or REO

BANK-OWNED OR REO (real estate owned) – In this case, the bank has gone through the complete foreclosure process and actually taken title to the property and evicted the previous owner in order to sell the property. There were some issues in the past with improper foreclosures but the banks have learnt their lesson and are doing their complete due deligence before they sell.


  1. Tends to be good value for money
  2. Relatively quick closing


  1. No guarantee you would get it as it is a bid – usually goes to Highest and Best
  2. May need to have repairs done as disgruntled owner may have removed/damaged items before leaving.  Also, home would have been unoccupied for some time.
  3. AS IS purchase – no repairs
  4. They tend to go fast


SHORT SALE – A short sale is a property in which the owner is delinquent in paying their mortgage payments. It has not yet been foreclosed on by the bank, but it may be IN THE PROCESS of being foreclosed on. In this situation, the owner, many times through an agent (their real estate agent) will negotiate a stay of execution on the foreclosure and allow the owner to attempt to sell the property for a price that is typically BELOW the total mortgage amount on the property. The bank is basically agreeing to take a loss on their loan amount in the hopes of avoiding a foreclosure proceeding and having to take physical ownership of the property.

Buying a short sale property used to be a lengthy process but most banks are now processing them faster. Most banks now prefer to do a short sale than to foreclose simply from a mathematical point of view; if the foreclose they have to spend between $40-60K in legal fees versus doing the short sale. Visit to see how short sale works.


  1. Good Value for money
  2. Banks are likely to accept offer at market value – They do an independent appraisal (BPO)
  3. House is generally occupied and so tend to be in decent shape
  4. There are plenty on the market to choose from
  5. Before we do a contract, I interview listing agent to determine how successful it might be.


  1. Success varies depends on listing agent ability, experience, negotiating ability or resource used
  2. Owner must be willing to provide timely information and documents to bank
  3. Agreement by 1st mortgage holder could depend on number/Types of liens, etc. on the property– Sometimes the 2nd lien holder or the HOA, etc give problems. If owner took a HELOC on the property, Mortgage Insurance, etc they sometimes ask for money from the owner at closing, etc.
  4. It can take months for a decision depends on bank/investor
  5. Not 100% certain you will get it
  6. Seller usually must have a genuine hardship
  7. Bank may not accept the offer price if it does not meet their expectation.
  8. It will be and As is purchase – no repairs
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Posted by on November 12, 2011 in Uncategorized


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