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Although the number of short sale and REO properties has been steadily declining in the past year, there may still be opportunities to purchase these homes. In fact, even with the decline, sales of these types of properties made up 36% of all home sales in the first quarter of 2013.
Before making the first move toward purchasing a short sale or REO property, you’ll likely need to sort fact from fiction – including the common misconception that the buying process is the same for both kinds of properties.
Use this guide to separate myth from truth so you can make an informed decision when considering a short sale or REO property.
A short sale occurs when a homeowner sells their home for less than what they owe on the loan.
Myth: Compared to foreclosures, short sales have a shorter buying process.
Truth: Due to the fact that a short sale transaction may involve more participants, the process often takes a longer time.
In addition to the homeowner, listing agent, buyer, buyer’s agent, and servicer, a short sale may include an investor, private mortgage insurance company, and second lien holder. All parties have to be in agreement before the home can be sold, and the decision to accept an offer ultimately rests with the investor. While this does not always mean a longer process, it can potentially increase the time until the process is complete.
Myth: The process for buying a short sale property is the same as buying an REO property.
Truth: The process is actually different and the time it takes to complete the process can vary because of the number of people involved. It’s always a good idea to be prepared for obstacles and delays, and have a backup plan in case things take longer than expected.
It’s also important to remember that because the foreclosure process can run concurrently with a short sale, any short sale property you’re considering could suddenly become a foreclosure sale.
Careful consideration should be given before entering into a short sale if you have firm timing needs – for example, if you need to be in a specific school district before the start of the school year or you can’t extend your apartment lease. In these circumstances, a short sale might not be the right option.
Myth: After buying a short sale property, you can flip it right away.
Truth: You’ll have to wait 90 days from the day you purchase the home before you can sell it.
REO properties, or foreclosed homes, are real estate typically acquired by a bank or lender after an unsuccessful foreclosure auction.
Myth: All REO properties are major fixer-uppers.
Truth: While most REO properties are sold “as is” and can have the reputation of being in bad condition, this isn’t true for all foreclosed homes. For example, many bank-owned and -managed properties are evaluated and repaired, which might include painting, replacing floors, or installing appliances.
Myth: All foreclosed homes have to be purchased with cash at auctions.
Truth: While certain foreclosure auctions may require a cash purchase, in many instances buying an REO property can be very similar to a traditional home sale. Typically, mortgages can be used to finance purchases, and home inspections are allowed.
In fact, some financial institutions offer financing that can be especially helpful when purchasing an REO property. For example, Wells Fargo offers its Purchase & RenovateSM program, which allows buyers to finance a mortgage and home improvements in one loan.
Myth: It takes months to get a response to an offer on an REO property.
Truth: Response times vary by institution. Wells Fargo typically responds to offers on its owned and managed properties within two business days.
Whether you’re interested in purchasing a short sale or an REO property, arming yourself with the facts can help you understand the ins and outs of the buying process. Preparation is essential ― make sure to get the property inspected, and remember to budget for any unforeseen expenses that may come along with a property that hasn’t recently been occupied.
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