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May 28th, 2010 12:42 PM by David W. Welch
I thought I would share some of the trends and practices I am seeing in Orlando real estate. Specifically, I wanted to point out some of the challenges in purchasing and closing bank owned and short sales in our market. The first thing any buyer should know is that there is a significant difference between a foreclosure and a short sale. Foreclosures are also called bank owned or REO properties. REO simply stands for Real Estate Owned, which is the what the banks call the properties they have taken back. There are significant differences in the processes in purchasing a short sale and an REO. Here in Orlando there are currently about 5,700 short sales available for sale compared to only about 2,000 bank owned. The prices of the short sales tend to be quite a bit higher than the bank owned properties too. This is not necessarily indicative of the short sales being over priced nor does it suggest the REO's are a better deal.
Because there are more short sales, they tend to be in higher price ranges, and short sales have had a bad reputation for taking a long to time to close; you will generally find less competition from other prospective buyers. When looking at last month's short sale closings compared with the active inventory of short sales we had about a 13 month inventory. The available inventory of REO's by comparison was only about 2 months. The nature of these two types of sales has created two very different purchase experiences. With the short sale you may be able to negotiate a sales contract for a price lower than the asking price. REO's frequently sell for more than the asking price with multiple offers on the properties. Short sale contracts typically can be negotiated very quickly, because the home owner decides. Offers on REO properties can take days and even weeks for approval, because the bank and many times their mortgage insurance company make the final decsion. Because short sales are more abundant and somewhat less popular, you are likely to be the only offer. There are fewer of the less costly bank owne properties, and most of the time there seem to be multiple offers. Short sales do not typically require the buyer to do any type of due dilligence up front and even the deposits are not collected until the seller's bank approves the sale. Banks will typically require all the documentation up front with the offer including "blank" checks for deposits or they will not even consider your offer. Many times they even require inspections to be completed before they even return the signed contract.
Usually, once the contract is agreed to with the bank on an REO it is like most any other sale. Even though they are as-is, you are still entitled to have inspections and financing contingencies must be satisfied. Rarely, do banks have to cancel the sale because of issues with the foreclosure process, but it does happen. Having a short sale under contract is just the beginning of the approval process with the seller's bank. Remember, the bank can deny the sale. They have no obligation to approve the short sale, so the contract could go nowhere. If they do approve the sale, it could still take months to go through the bank's approval process. Until the approval is issued and is satisfactory to the seller, the normal steps toward closing are in a waiting status. I hope this gives you a little more information. For more you can visit my webpages www.DavidWelch.com/shortsale and www.DavidWelch.com/BuyerForeclosuresREO's.
David Welch Real Estate Optimist, Orlando Real Estate