Short Sale Bank Owned and Motivated Seller

Difference Between a Short Sale Bank Owned and Motivated Seller

Foreclosure Short Sale and Motivated Seller:  What is the difference between these three types of real estate sellers?  Which one of these three types of properties offers a buyer the best opportunity in today’s real estate environment?

Want to Know what your house is worth: Click Here
Let Me Help You Find Your new home: Click Here

Foreclosure:  A foreclosure sale is the sale of a property that is owned by a bank.  A foreclosed property, also known as an “REO” for “Real Estate Owned”, is like a repossessed car.  When the borrower can no longer make monthly mortgage payments to the bank that loaned the money to buy the house, the bank essentially repossesses the house and kicks out the defaulting former homeowner.

Short Sale:  A short sale is a sale of a property by the owner who owes more on a mortgage than the property’s current value. Example: If Joe bought a house for $500,000 and financed 80% of the purchase price, Joe has a mortgage (The amount he owes to the bank who loaned him the money to buy the house) for $400,000.  If the current value of the house is only $350,000, a sale at the current market value will not give Joe enough money to pay the bank all of the money that he owes (Joe owes the bank $400,000 but can only sell his house for $350,000).  In a short sale, Joe (with the help of his experienced real estate agent) will have to convince the bank to accept a payment of $350,000 as full payment which is SHORT of the $400,000 that is owed to the bank by $50,000.  This example would be a $50,000 short sale.

Motivated Seller:  A motivated seller is a person who owns a home and has some hardship that creates an urgent need to sell.  I believe that every property that is currently listed for sale is owned by a motivated seller.  Any seller who is not highly motivated would not list their house for sale at this time and would wait until the real estate market improves to sell.  If a house is for sale in this real estate environment, you can bet that the seller is VERY MOTIVATED.

Where are the BEST Deals for Buyers?

Foreclosure: Buying a foreclosed property is a fairly straight forward transaction.  Banks are not in the business of owning real estate.  Once a property is foreclosed upon the bank is very motivated to sell that property quickly.  In our local area, banks will typically list their properties owned at an asking price below the current market value to stimulate a lot of interest and facilitate a fast sale.  My experience has been that a property that is priced below the neighborhood comparables will sell at a price above the asking price and closer to the actual value as determined by neighborhood comparables.  For buyers, a foreclosure purchase is usually a straight forward and relatively easy transaction.

Short Sale:  Buying a short sale property is a long and difficult process that many times leads to frustration and disappointment.  I could not find a concrete statistic, but a Google search of “short sales” will make it apparent to you that many short sales do not result in successful transactions.  Instead, short sale listings often end up as foreclosures.  There are new guidelines in place that are speeding up the short sale purchase process.  My recent experience is that short sales are getting easier.  That being said, you should not stop looking at other properties that are available if you do decide to write an offer on a short sale listing.

Motivated Seller:  Motivated sellers typically offer a buyer a relatively straight forward sales transaction.  Motivated sellers have some dire need to sell at this time and usually want to sell very quickly.  There are many different reasons why a seller may be highly motivated.  The more common reasons include: Divorce, loss of a job, a job transfer, and a buyer who purchased the property with an adjustable rate mortgage who can no longer keep up with the payments.  A highly motivated seller will, like a bank owned foreclosure, typically offer a very good opportunity for a buyer in today’s real estate environment.

I hope that you found this information to be helpful and that you now have a better understanding of the different types of sales that are most common in today’s real estate market.  As always, please do not hesitate to contact me about this article or any real estate related matter.