Difference between a short sale and bank owned home.

This is from an email I sent to a friend of the family. I get these questions a lot, some of you may know all this stuff already:

Short Sales:
1) They usually take a long time
2) You can get a good deal.
Description: A Short Sale is where the bank has agreed with the seller to take less than is owed on the loan. If an appraisal or BPO (Broker Price Opinion) has been done, the listing price is usually close to what the bank will accept. In my experience, the agents are very upfront with what price the bank is looking for. I just had one recently, it was listed at 410k, I called the agent, and he let me know the bank would accept 390k based on the recent BPO.

I’ve sold a couple of short sales, and I also do the same thing. After the appraisal is done, the bank wants somewhere close to 85% of the appraised value. Multiply the BPO by about .85, then add the “Appraised Price * .08” (for closing costs for the seller, including the real estate fees) and that’s the bottom line price.
Example:
BPO or Appraisal = $100,000.
Net the bank wants = $100,000*.85 = $85,000
Seller closing costs = $100,000*.08 = $8,000
Lowest price you can offer and have it be accepted = $85,000+8000 = $93,000.

I usually ask the agent what it appraised for, and also what the bottom line price is. If he tells me what it appraises for, I can usually come close to the bottom line price as well.

It will often take about 4-6 months if the appraisal isn’t done. Some banks will wait until the first offer is submitted before starting the appraisal etc. Some will do an appraisal up front.

The MLS (Multiple Listing Service – where agents list homes) has various “status” types.
Active = home is for sale.
Pending = home is under contract.
Sold = home already sold.
You usually don’t have access to the pending/sold homes in the MLS searches available on the most websites. Other status types are:
Contingent Short Sale and Contingent Other = The contingent short sale status in Boise means that the home has an offer (or more) on it but is waiting for the bank’s final acceptance. That should mean other people can still submit offers.

That’s one of the draw backs of a short sale (until the bank finally accepts the offer, which can take months, other people can offer as well). Once the status is contingent though, the chances of other offers coming in are much reduced.

Bank owned properties have already been through the foreclosure process and are now owned by the bank directly. They are also known as REO (Real Estate Owned). They’re usually priced at the very bottom of the market (or below market).

Bank owned property transactions generally go very smoothly. Its very similar to working with a homeowner. There is usually extra paperwork (if its Government owned, then LOTS of extra paperwork). However, they’re easy to deal with, usually a great price and closing times are very similar to a non-short sale owned home.