REO (Real Estate Owned) Vs. Short Sale
REO stands for Real Estate Owned. This means the bank or lender owns the home.
But why does the bank own a house?
Here’s how it happens:
- A person buys a house and takes out a loan (called a mortgage) from the bank.
- If that person can’t keep up with the payments, the bank starts a process called foreclosure.
- The bank tries to sell the house at a foreclosure auction.
- If no one buys the house at auction, it goes back to the bank.
- Now the bank owns the home—this is called an REO property.
Why Does the Bank Want to Sell It?
Banks don’t want to keep houses. They want to get their money back. So, they try to sell the REO home to someone else—like you!
What Is a Short Sale?
A short sale happens when the current owner still lives in the home but owes more money on the mortgage than the home is worth.
Let’s say:
- The owner owes the bank $250,000.
- But the home is only worth $200,000 today.
The owner can't sell the house and pay the full loan, so they ask the bank, “Can we sell it for less than what I owe?”
If the bank says yes, that’s a short sale. The bank agrees to take a smaller amount of money just to avoid going through foreclosure.
Who Owns the House in a Short Sale?
The homeowner still owns it, not the bank. But the bank has to approve the sale because they’re not getting all their money back.
How Is an REO Different from a Short Sale?
Here’s a simple chart to help you compare:
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Why These Sales Take Time
Both REOs and short sales can take longer than buying a regular home.
For REOs:
- The bank may take time to respond to offers.
- The home might need repairs.
- You may buy it “as-is,” which means no fixes before closing.
For Short Sales:
- The bank has to review everything before saying yes.
- It might take weeks or even months for an answer.
- The owner is still involved in the process.
So, if you’re in a rush to move, these may not be the fastest options.
Are They Cheaper?
Yes—both REOs and short sales are often cheaper than normal homes. That’s one reason buyers look at them.
But remember:
- Cheaper doesn’t always mean better.
- The home may need a lot of repairs.
- You may not get help with closing costs.
- There can be more paperwork.
What Are the Risks?
It’s smart to be careful. These homes can be good deals, but they may also come with problems.
With REO Homes:
- The home might have been empty for a long time.
- Pipes could be broken, the roof may leak, or there could be mold.
- You usually buy it as-is, which means no repairs from the bank.
With Short Sales:
- The process can take months.
- The bank could say “no” to your offer.
- Other buyers may give higher offers.
- You could wait and still not get the house.
What Should You Do Before Buying One?
Here are a few smart steps:
- Get a home inspection – Always know what shape the house is in.
- Work with an agent who understands these sales – They can help with all the paperwork.
- Get pre-approved for a loan – This shows the bank you’re a serious buyer.
- Be patient – These sales take time.
- Make a strong offer – The cleaner your offer (fewer demands), the better.
Pros and Cons
Let’s break it down:
Pros of Buying an REO or Short Sale:
- Lower prices
- Chance to get a good deal
- Less competition than regular listings
Cons:
- Slower process
- More paperwork
- Home may need repairs
- Less wiggle room to negotiate
Tip to Remember!
You might see people on TV buying foreclosed homes and making tons of money. But here’s the truth:
Buying REOs or short sales is not a get-rich-quick trick.
It takes time, patience, and sometimes a lot of repairs. But if you’re willing to put in the work—or if you’re just looking for a more affordable home—it could be a good choice for you.
Final Thoughts
So, what’s the difference?
- An REO is a home the bank owns after foreclosure.
A short sale is a home still owned by someone, but the bank lets it sell for less than the mortgage.
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