Phoenix Real Estate Primer: The Difference Between Lender Owned and Short Sale Properties

Jonathan Dalton, Phoenix Real Estate AgentForeclosures and short sales often get lumped together in the minds of would-be buyers but they’re two very different animals.

Foreclosed properties, known alternatively as lender-owned or REO (real estate owned) properties, often represent sales rooted in market value. While buyers aren’t negotiating with a person and therefore lose some of the leverage that comes from dealing with someone with emotion, lenders often are open to some negotiation in the quest to get a home off their books.

List prices on lender-owned properties are legitimate list prices – a full-price offer will almost certainly result in a sale. And so will offers for less, within reason.

Contrast that to the interminable miasma that is a short sale.

List prices are figments of the listing agent’s imagination. A full-price offer may not result in a sale because the lender almost certainly hasn’t approved the list price. Lenders usually will not approve a final sales price until they have an offer in hand; what the MLS says is meaningless to them.

Response times on REO properties usually run around a week – it takes a little time for a formal approval to be granted, but the banks’ REO departments try to stay on top of things.

Response times on short sales usually run well beyond a month – we’re coming up on two months for one property we wrote a contract on back on November 3. Banks are in no real hurry to make a decision, often because they still have the outside chance that someone will purchase the home at a Trustee’s sale at a high enough amount to satisfy the loan.

There are some similarities between the two.

Almost all (and I’m hedging only for the incredibly slim chance there’s an exception) are as-is sales – what you see is what you get. A buyer has the right to a home inspection but any requests for repairs are going to be ignored. The bank says so up front.

Condition varies from property to property but virtually all short sales and REO homes need some degree of work. Not surprisingly, owners don’t invest a great deal of time or money into their homes once it’s clear the bank will be taking them back. And many try to sell whatever they can from the home ahead of the sale – fans, appliances, countertops, even the smoke detectors.

While not common, it’s not unheard of for a seller facing foreclosure to sabotage the house in some way. Such tales usually fall in the category for urban legends but it does happen.

For those who know what they’re getting into, there may be opportunity to be found in an REO property. But on a short sale, you’re almost better off waiting for the bank to take the home back and re-market it with a legitimate list price and a real chance to sell.

[tags]Phoenix real estate, short sales, REO homes[/tags]

Jonathan Dalton

Jonathan Dalton is a 40-plus-year resident of the Valley and has been helping folks buy and sell homes since 2004. He can be reached at 602-502-9693 or info at


  • tony anderson 10 years ago

    I believe all short sales and REO homes should be inspected by a professional home inspection company. i was about to buy a bank home when i had it inspected by and they told me alot of information regarding the expenses to fix it and it was not going to be worth it.. so a few hundreds bucks can save you alot.. nice blog, keep up the good work!!