REO, Bank Owned, HUD, Short Sale. What Are They?
John tells us what the differences are between REO, Bank Owned, HUD, and Short sale Properties. He also gives an idea of what to expect when dealing with each type of property.
JOHN: Hey, guys. John Jones with another edition of Tuesday Morning Coffee. Something I want to talk about today is something that’s very confusing to the public and confusing to me sometimes. But it’s what is the difference between an REO property, a bank-owned property, a HUD home, a short sale. I get that question all the time and it is very confusing because we see all those different terms out in the marketplace.
So I’m going to try to clear that up for you. An REO, which means real-estate owned, is a foreclosure. It is being marketed and dispersed of usually by a company hired by the bank called a real-estate owned company. A bank-owned home is the exact same thing. It is a foreclosure, just a different term. A HUD home is a foreclosure as well. The only difference is it was formerly an FHA loan, so the government guaranteed that loan so the government is responsible for dispersing of that property.
But all three of those have one thing in common. They’re all foreclosures. They’ve already been foreclosed on, and those entities are trying to disperse and get those properties off the books. A short sale. A short sale is a home that is still owned by the homeowner, probably in imminent danger of foreclosure, trying to garner an offer that the bank will accept shorting the amount that the homeowner owes the bank because they are in a distressed or hardship situation and can’t make the payments.
Pricing. Can you trust the pricing on foreclosures? Generally, you can. If they put a price out there, it’s pretty much like any type of other seller transaction or seller pricing. They’ve got a price on there, usually negotiable, and generally you can trust that price, meaning if you paid that price, they’re going to sell you the home. They generally, if they don’t have offers in the first few weeks, they will lower them every few weeks. They are trying to, like I said, get rid of these properties and get them off the books.
A short sale is a little different. It’s a price that the homeowner and the agent put on the property in hopes of getting an offer. They don’t know for sure what the bank will accept. The bank will not tell you that until they get an offer and order their appraisals and then at some point you will find out basically what the bank will do. It makes it a lot harder to negotiate on them because you have no clue if that price is a true price or not because, like I said, you really won’t get the bank’s answer or response or see their hand until an offer has been made.
It makes it a little bit more difficult. Short sales require a lot more patience. Foreclosure homes generally you’re going to get an answer in a couple of days, and you’re going to be able to close in a timely manner. I get asked this all the time: “John, where can we get the best deal?” Both of them can offer pretty good deals. I haven’t seen a ton of what I would call steals, but I have seen where you can buy both foreclosures and short sales below the market. A foreclosure is a lot easier to deal with as far as getting answers and getting things on a timeframe.
Short sales do require patience and do require a little bit of maybe Valium is a good word because they can be very frustrating because these banks have a ton of them and it just takes them a while to get back to you. But either one can give you a pretty decent value. I hope this cleared up a lot of confusion for you. If you have any more questions, please give us a call, 867-3020. Thank you.