I just wanted to take a minute (maybe 5) to try and easily explain the differences between REO, HUD and short sales. The majority of homes currently on the market in Solano County and across nation are short sales and REO’s. I think it’s important for people to understand the differences and how it will affect their real estate activities.
REO (Real Estate Owned) – Means a bank owns the property because they foreclosed on the owners. These homes typically vary in condition. Sometimes the banks will paint, put in new carpets, make miscellaneous repairs, and replace broken or missing items. Other times banks put the home on the market in the same condition they received it, this could mean holes in the walls, broken cabinets, and other random things people do when they get made they are loosing their home.
REO’s are listed at a price the bank has approved and therefore can typically close in 30 days or less. Keep in mind banks do not like to hold properties on their books for extended periods of time and are very motivated to sale.
HUD (Housing and Urban Development) – When an FHA (Federal Housing Administration) loan goes into foreclosure it then goes to HUD. HUD wants to help individuals own a home. They have a pretty neat process where they have a certified FHA appraiser go out the property and determine the value. HUD then lists the property for the appraised amount (great for FHA buyers, they don’t have to pay for an appraisal if the appraisal has not expired). Individuals purchasing the home as their primary residence have a period of 10 days to submit offers before the bidding opens up to investors as well. Just like REO’s, HUD wants to sale their properties as soon as possible. Make sure your agent is registered with HUD, only registered agents can submit offers.
Go to http://hudhomestore.com/HudHome/Index.aspx to view a list of HUD homes for sale in your area.
Short Sale – Before a home goes into foreclosure individuals have the opportunity to “short sale” their home. Many times a short sale is a much better alternative than a foreclosure. If the owner has experienced a change in income or circumstances (e.g. medical, divorce, loss of job, retirement, a balloon payment coming up, etc.) they can hire a real estate agent (paid by the bank) to find a buyer for their home and negotiate with the owner’s bank to accept the sale and forgive the remaining balance of their mortgage (the seller coming up “short” of what they owe). What buyers need to know about this process is that it can be time consuming. The bank needs to approve that the seller has a circumstance that warrants a short sale and the bank needs to determine the value of the house to ensure they are getting a fair value.
In this crazy economy the days of a buyer and seller working directly with each other are rare and it’s important for anyone dealing with real estate understands the different options and processes to find what works best for them.
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