SHORT SALES
What is a Short Sale?
A short sale is when a homeowner has to sell their property for LESS THAN what they owe; in other words, their mortgage is more than the value of the property. There can be a variety of reasons a homeowner finds themselves in this situation (ie. they can no longer afford their monthly mortgage payment, divorce, relocation, etc.) These types of real estate sales are called, SHORT SALE.
The homeowners’ owe the bank more than they can sell the house for!
The homeowners and their agent can try to sell their property and when they get an offer, they can ask the bank to accept the offered price and ask them to cover for the loss of the difference between the loan amount and the selling price.
In order to start working with the bank regarding a short sale, it is necessary for the homeowner to have an offer from a buyer. For this reason, a listing agent will often put a very low price on the house in an attempt to attract buyers and get an offer.
The listing agent can put whatever price s/he wants to write because in the end it is the bank that decides what price they will sell the property for. If the offer is too low, the bank will not accept it and maybe not even react to the offer. On the other hand, if the offer is close to the market price, they might accept it, or come back with a counter offer.
How does the bank know what the market price is? Since the bank does not want to lose any more money than necessary, they will send one or two appraisers out to the property to make a price evaluation. In this way, the bank will have an accurate appraisal and market value of the property. Knowing what the market value of the property is, the bank is in a better position to accept a lower price if it is within a reasonable percentage of the property value.
From the moment the offer and all the paperwork regarding the short sale is sent to the bank, it can take many months for the bank to return an answer.
Unless the homeowner is behind in their mortgage payments, there is a strong possibility the bank will NOT accept a short sale. They might not even react to the offer, or, they may ask the seller to pay some money back!
Seldom will the first buyer who gives an offer on the property wait so long to get an answer from the bank. There may come many offers on the property along the way.
Instead of just letting the house go back to the bank, why would a homeowner try to sell their house as a Short Sale? There can be several reasons for this. For example, the owners may want to feel good they left their property knowing that they tried to sell their property, they hope their credit score will not be affected as much as a foreclosure sale, and perhaps they might want to know the new owners.
In the end, maybe the house will be sold as a short sale; or maybe the short sale will never happen and the house will go to auction before any offers have been accepted by the bank; or maybe the owners will find a way to keep the house.
REO
What is an REO?
REO (Real Estate Owned) property means a bank owned property. The property has been on auction and because no buyers bought the house at auction, the bank has taken back the house.
Now the bank wants to sell the property. First, they have to be sure nobody lives in the property. If somebody lives in the property, the bank has to get these people to leave. They either offer them money to leave, or they get a court order.
As soon as the house is vacant, the bank has to check the condition of the house to see if something important needs to be repaired or replaced, things that might prevent the house to be sold.
When the house has been deemed ready for sale, the house usually hits the market at a low price. The bank likes to have it sold and they enjoy entertaining multiple offers.
PUBLIC AUCTION
What happens at a Public Auction?
A public auction is not the same as a foreclosure auction. A public auction is an auction where a sales company arranges to get some listings (REOs) from different banks. A specific date is set for the auction, which is Open to the Public. This date will be advertised in newspapers, television, magazines, and other advertising mediums.
Thousand of people will normally show up hoping to get the deal of their life. These buyers must have proof they have money to buy, and they will be required to bring a check that they can use as down payment.
The auction will go fast but because there are usually so many properties for sale, the auction can take an entire day. Even if a buyer wins the auction, s/he has no assurance s/he has even bought the property because the bank has the final decision. If the auction price was too low, the bank will not accept the deal.