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Do I Buy A Foreclosure Or A Short sale? Is It Similar To Buying A Used Car? Which Is The Better Deal? distressed_properties_for_sale1 Full view

Do I Buy A Foreclosure Or A Short sale? Is It Similar To Buying A Used Car? Which Is The Better Deal?

Many homeowners are now capable of purchasing a home with the all-time low home prices and interest rates. Short sales and Foreclosure/REO properties offer cream of the crop deals that are difficult to simply pass by. If you are looking into the housing market, it is wise to adequately educate yourself especially when looking into distressed properties.

The big question we’ve been getting is, is a short sale or a foreclosed property the better deal? Below is a large pros and cons list for both short sales and REO properties.

*Information derived from Foxbusiness, ABC ActionNews, RealtyStore, WhisselRealty

REO Properties: Real Estate Owned – An REO is a property that the bank foreclosed on and is now for sale.


  • The seller of the property is a bank that has no emotional attachment to the property…they are all about the numbers.
  • They are often priced aggressively as the bank wants to sell the property as quick as possible.  They want to stop the business of managing and selling property, and get back to the business of lending money.
  • These homes are typically vacant and are very easy to show.
  • The banks will usually respond to your offer in 3-5 business days.
  • If the home is owned by Fannie Mae, it may qualify for HomePath financing which only requires 3% down and does not require an appraisal or mortgage insurance (MI).


  • Because these homes are aggressively priced, they often received multiple offers.  This is where it becomes important to work with an agent that has a strong understanding of how to write your offer to make it stand out from the competition.
  • These homes are sold as-is and the bank will often make no repairs.  As you have probably seen in the news, many of these homes have been stripped by the previous owner and/or vandalized by criminals.  Because of this, they may not qualify for FHA or VA financing.
  • You will also have no disclosure forms from the previous owner with REO properties, nor will you be able to get good answers about the neighborhood with repossessed homes as simply as you would through the normal process with a realtor and private seller.
  • In these post-bubble days, a bank may also not own the repossessed homes as cheaply as was the norm in previous economies. They may also try to recoup some of their expenses from the foreclosure process as well as the monthly costs of owning and carrying REO properties.

Short Sale Properties: Homeowner sells for less than what is owed.


  • Many agents will not show short sales due to the long response time which opens up opportunities for those buyers that are not in a hurry to buy.
  • These homes are typically in better condition than bank owned homes because the homeowner is usually still occupying them and taking care of the home.
  • The banks will often accept less than market value because they do not want to foreclose on the home and take on the task of managing and selling the home.


  • The process of negotiating a short sale with the mortgage bank typically takes 1-6 months.
  • The bank is under no obligation to approve a short sale offer.  Less than 50% of short sales that are submitted to banks are approved.
  • Often times the banks will not pay off all of the liens against the property (HOA dues, property taxes, ….) and the buyer may be asked to pay for these items.

In conclusion, one of the main discrepancies between a short sale vs an REO property can be described by the scenario of buying a used car either from a dealer or from a private owner. If you get it from an owner (REO), you may get the vehicle at a more discounted price but the quality of the asset is a gamble. You may end up spending a lot in repairs because the vehicle’s engine hasn’t been maintained.

In many cases, an REO property is vandalized and/or the previous owner out of spite, trashes the property prior whereas in a short sale, the property is significantly less likely to be vandalized or mistreated prior to transferring the home.

An important factor to note is to find a company that has Certified Distressed Property Experts when purchasing an REO or Short sale property. You are dealing with hundreds of thousands more than a simple vehicle and it is not worth taking a chance on a distressed property. Our experts in Washington State are certified and have experience in finding the best deals in the area. Submit your information here if you would like to learn more about short sales vs REO’s and are interested in looking into discounted properties.

Hope this helps


Written by SSB


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