Every time you read an article about REO, there is a sentence there that says not to expect the same steep discount from short sales. They also add that short sales provide opportunities for higher profit margins and investors should focus more on preforeclosures or short sales than REO's.
But in practice, more investors and home buyers purchase REO properties than short sales. And according to a leading foreclosure website, only around 10% of short sale deals actually close.
So what is turning buyers and investors away from short sales?
1) Length of time to close a short sale deal is too long
Banks typically respond to REO offers within 1 to 2 weeks. On the other hand, in a short sale deal, the lender only gets notified of the deal after more than a month of negotiations between seller and buyer. And banks are much slower to respond to short sale deals than REO offers.
In fact, REO deals typically close within a month, but short sale deals if they close at all can take up to 4-6 months to close.
2) More complex negotiations and paperwork in short sales
Buyers are dealing directly with distressed sellers, and after that with bank representatives who are hesitant to accept short sale deals because of the deficiencies.
Hence, it takes more time, and energy to get in touch with all the parties and get them to agree on a price to close the short sale deal. While in the REO process, you only deal with the bank or its agent.
3) Trouble reaching an agreement between Second and First lien holders in short sales
Some second lien holders drive a hard bargain of getting a higher share of the selling price which can destroy the whole deal. And first lien holders are usually not willing to compromise to a lesser win-win deal with the second lien holder, and the buyer is not willing to pay more to satisfy all the lien holders.
Hence, if you consider the time, effort, and stress you spend on moving a short sale to a close - REO deals are a more profitable way to own foreclosed properties.
Craig Picard and Don Goff have helped 367 real estate investors grow their profits from buying and selling bank owned properties from zero to over $10,000 per month in only 3 months. To get your free CD "Foreclosure Investing Secrets" and learn how to profit during this recession go to http://www.REOInvestingRiches.com
Labels: REO