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Understanding the difference here is key. An equity sale is a property with no conditions of sale, which means the final negotiated price will leave the seller of the home with money in his/her pocket. (For instance, if a seller sold his property for $100,000 and the buyer owed $40,000 on the house, the buyer would have paid off the loan and had $60,000 in his/her pocket). With an equity sale, there are certain advantages to a buyer. For example, you get to deal directly with an individual decision maker, which makes it easier to ask for concessions and get answers to questions. The biggest advantage of an equity sale is how quickly you can close a transaction. The main disadvantage of an equity sale is that - sellers may or may not be motivated to sell, which means they can hold onto their price.
With a short sale, the seller owes more on the property than what they can sell the property for (and the seller wants to avoid a foreclosure). For example, the seller can sell the property for $100,000, but still have a loan of $160,000 owed to the bank (aka lien holder). Once the seller accepts, they must go to the bank and ask if they will accept $100,000 rather than the $160,000 that was owed. With short sales, there are advantages to the buyer: The seller is motivated to sell and usually prices the property very low. Also, the property is typically in good shape, as the owners are usually still living there and want to avoid a foreclosure. Beware, there is also a major disadvantage to the buyer: time. The process to get the lien holder’s approval can take some time (usually between 30 and 120 days). The lien holder may choose to counter offer at higher than the listed price.
An REO (which stands for real-estate-owned property) is a property that was taken back through the foreclosure process. Sometimes these are referred to as bank-owned properties. Basically, with an REO, no one bid on the property at the public auction and it went back to the bank; the bank now owns the property. The seller of the property is the bank and you are now forced to negotiate with the bank. With REOs, there are certain advantages to the buyer: The bank is motivated to sell, which means the property is usually priced lower. Plus, it’s typically quicker to get an answer than when dealing with a short sale. There are also a couple of major disadvantages: The property is usually bought “as is” and since it went through the foreclosure process, the previous owners usually did not maintain the house very well. Also, the bank has guidelines when negotiating and there is little room for negotiating.