Short sale? Bank owned?  Two terms you need to know.

In today’s market you cannot go to a city, or neighborhood for that matter, without hearing about short sales or bank owned properties.  Before 2009, you could find pockets of communities with little or no distressed properties, such as Issaquah or Kirkland.  Look around today, and practically ever neighborhood has these properties in distress.

Short Sales

Short sale and bank owned homes are situations where sellers are in “distress.”  Typically, short sales are properties where the amount owed on the property exceed the value of the home.  With average values dropping 20% year over year, 20% equity you had a year ago is nearly or all wiped out.

As a result, sellers who want to sell are forced to short sell the property.  Essentially, asking the bank to take a loss on the loan in order to close the deal.  For example, the value of the home is only worth $300k but $330k is owed on it.  So the bank would need to forgive $30k of debt in order sell the property.

Bank Owned (REO’s)

Bank owned properties, also known real estate owned (REO), are properties where the bank is the seller.  They already went  through the process of putting the guarantor (previous owner) into default, issuing notice of trustee sale (NTS), and putting the property through the auction.

If for some reason the property did not get purchased at the auction it reverts back to the bank.  At this point the bank has full authority to sell the property.

Short Sale vs. Bank Owned

In my experience, short sales take the most work but are well worth IF they go through.  It’s really hard to predict whether it will be worth it.  A good indication however, is whether the short sale has been approved by the lender.  A good agent will have this ready.

Bank owned properties on the other hand have been neglected for months on end since the owner knew they were losing through foreclosure.  These homes usually haven’t had any work done on them and buyers usually can’t request any work orders at inspection.

All in all, I prefer short sales.  I try to talk to the listing agent to get an idea whether it’s likely or a long shot.  If there’s a decent chance of closing, I encourage you to give it shot if you’re willing to sit tight.

I hope you found this article helpful.  Contact me with questions you have or if you want to find out more information about short sales and bank owned properties – (206) 595-1696.