AFG Realty Blog

In the current market, many listings are REO’s or Short Sales. Sometimes as many as 80% of the listings in a given area are in these 2 categories. Many buyers are unsure of what exactly these terms mean and how they affect a purchase. Short Sales are the easiest to explain so I will start with those and then explain REO’s.

Short sales have very little affect on the buyer. Basically, a short sale is an agreement between the seller and their finance company. When a homeowner is at risk of losing their house to foreclosure, one of their options is to convince their mortgage company to accept a “Short Sale”. What this means is that the mortgage company will allow the homebuyer to sell the house for less then is owed. The reason that the mortgage company may allow this is that they save the hassle and expense of going through the foreclosure process. The homeowner’s credit is not damaged as badly as if they went through an actual foreclosure. The problem for the buyer is that they have to wait until the seller and their mortgage company have come to an agreement before an offer is accepted. I have personally been involved in a short sale transaction in the last year where it took over 5 months for the seller and their mortgage company to come to an agreement. That is a long time for a buyer to wait. You may get lucky and find a short sale where the mortgage company and the seller have already gone a long ways into the process. On the plus side, the seller is still bound by all laws of transaction and disclosure when involved in a short sale.

REO stands for “Real Estate Owned” and means that the mortgage company owns the property and that nobody purchased the property when it was involved in the foreclosure auction. The property is now on the open market. Since the mortgage company has never lived in the property they are exempt from providing many disclosures regarding the property. These houses are almost always sold “as-is” although there are no laws stopping the buyer from requesting repairs. It is very important for the buyer to exercise great caution in investigating the property. A home inspection is highly recommended as well as follow up investigations in regards to the findings of the home inspector. Possible items are roof, plumbing, heating/cooling and electrical issues. There are some great deals to be found in purchasing REO’s but the buyer needs to be careful they are not buying too many problems.

Following the guidance of a reputable real estate agent through the purchase of REO’s or short sales will increase the odds that the property purchased is a good deal. Any Agent at AFG Realty can assist you in deciding where the good deals are and which properties to stay away from. We would look forward to assisting you in your purchase!
Stephen Armstrong
Broker
AFG Realty