REOs vs. Short Sales: What You Need to Know Before You Buy

It can be argued that the best deals in real estate are REOs and short sale properties, with many offers being made days or even hours of becoming available. Why are they so appealing? Quite simply; they are priced to sell. But it’s important to really understand these properties and what you’re getting into if this is the route you decide to take.

REOs REOs are properties that banks have foreclosed on after the homeowners have not been able to make payments. Banks are left with the burden of maintaining the properties and selling them in a down market. In areas where thousands of properties have foreclosed, the expense can be enormous. In order to unload the homes, banks often price them below market.

SHORT SALES – These are properties that a homeowner owes more than the value of the property and the lender has agreed to sell for less than the amount owed on the mortgage – forgiving the seller their remaining debt. If a bank believes it can avoid less of a loss, they will sell the property short rather than putting it into foreclosure. Buyers usually have the opportunity to purchase these at current market prices or a little below.

REOsand short sales can absolutely be some of the best deals out there, but they are more complicated to buy than traditional homes. If you’re thinking of looking in this market, here are some suggestions that might help your search:

  • Know where and how to look – REOs and short sales are usually listed on the Multiple Listing Service and can be found on the majority of websites that feature properties for sale, including Many lenders also have their foreclosed properties listed directly on their websites.
  • Hope for the best, prepare for the worst – In all likelihood, you will not be “wowed” when touring a foreclosed property. It’s often the case that in the months leading to foreclosure, homeowners disregard maintenance and let the condition of the home deteriorate. You might have a better chance of finding short sale properties in good condition because once the bank decides to sell it short, it’s listed on the MLS and buyers are able to tour it. Homeowners tend to move out more quickly, giving the home less time to deteriorate.
  • Be patient – Transactions usually take longer when working with banks. Normally, you may hear back on an offer from the seller the next day. But with banks, an offer may have to be passed around for several people to review and approve. Expect a few days, weeks or even months to hear back on whether your offer is accepted.
  • There are other fish in the sea – Don’t worry if you don’t get the first or second property you make an offer on. There will be others. Foreclosures can come and go quickly, especially those in good condition. Be ready to pounce, but don’t be too disappointed if you miss out.

A foreclosed property could be one of the best investments you make, but also the most complicated. If you take time to do the research, you will likely find yourself reaping the benefits of your investment for years to come. Please let me know if you have any questions while beginning your search.