REOs & Short Sales: A Steal or a Deal?

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I received a phone call yesterday from a buyer’s agent who was calling on one of our bank-owned (REO) listings. The bank had just reduced the list price on this particular property by $15,000. We’ve had tons of traffic and gotten a handful of offers in the last few days. In the conversation, this agent asks, “What’s the home really worth?”

“Well, the bank thinks it’s worth the list price.” I said.

After further conversation, I learned that she was representing an investor who was looking for properties to flip. Her buyer was hoping to pay about $50,000 below the list price so that a profit could be made at resale. “This may not be the home for your buyer unless the buyer is willing to pay the list price,” I commented (knowing full well that we had a few full price offers on the table).

She grumbled and hung up. I feel sorry for her; she’s got a tough job.

A market full of short sales and REOs doesn’t always mean a steal or a deal for the buyer. With respect the REOs (especially those for which traditional and FHA financing can be obtained), banks are expecting to receive offers close to market value.

With respect to short sales, it’s pretty much the same. Yes, the property owner is in ‘distress’. Yes, the bank wants money fast. That being said, banks are generally unwilling to sell a short sale for a song. Government programs such as HAFA (Home Affordable Foreclosure Alternatives) designate a pre-approved purchase price for short sales and that price lasts for 120 days. So, getting a steal (or a deal) on a HAFA short sale is going to be next to impossible.

In Southern California, we’ve been seeing lots more aggressive foreclosures than before. But, the pool of available homes for sale has not been increasing proportionately. So, there must be one heck of a shadow inventory. When that shadow inventory is unleashed on mankind, perhaps the tables will turn and the banks will be more open to lower offers.

What say you?

Photo: debaird

About Author

Melissa Zavala is the Broker/Owner of Broadpoint Properties and Head Honcho of Short Sale Expeditor®. Before landing real estate, she had careers in education and publishing. Many folks say that Melissa is genetically pre-disposed to success with short sales. In fact, last year she and her staff obtained over 500 short sale approval letters! When she isn’t speaking with lien holders, Melissa enjoys practicing yoga, walking the dog, and vacationing at beach resorts.


  1. Melissa, here in Northern California things are pretty good. I just bought a piece of land in a very desirable neighborhood for half the price of what it is worth. I offered way more than the asking price because I knew what the property was worth. Apparently there were four other offers but I got it. It was also an REO owned by the bank. Apparently the other offers were from investors but for me, I just wanted to build my dream home and I believe it also helped that I offer to buy it for cash and promised them that I would not sell it for a while. I will never sell, it’s for my dream home. As soon as I closed the sale, in a few days, I received offers to sell it for 70% more than I bought. Thanks, but no thanks!!!

  2. Jeff Brown

    Hey Melissa — I’m pleased you brought up the dreaded (by many) shadow inventory. In our local market, San Diego, many have deemed it urban myth. I’ve come to call the SIDs — Shadow Inventory Deniers. 🙂

    What’s your take when it begins to hit SD, which could be as soon as the 3rd or 4th quarter? Thanks

  3. Tyler Rueger on

    Was looking at a short sale home in pasadena a few months ago but things fell through. Moved up the coast more, and its funny you go up a few hours north and this issue is nearly non existant

  4. Here in the greater Seattle area, REO lisitngs are priced to compete with what is on the market not beat it.

    Investors looking for homes fifty cents on a dollar can get that, if they are willing to take on distressed non conventional loan inventory.

    Otherwise, a price reduction usually occurs after ninety days and the reductions get more frequent from that point, if someone wants to wait.

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