Short sale and foreclosure homebuyers need to be aware that the sale won’t necessarily close as quickly as it would for a regular home purchase. The short seller’s lender must approve the foreclosure terms or short sale price, which will be less than what the seller owes. Even so, banks may be slow to respond.

Foreclosures are involuntary, where the lender takes legal action to take control of and sell the property. Homeowners who use short sales are responsible for any deficiencies payable to the lender. Short sales allow people to repurchase another home, while foreclosures affect a borrower’s credit score.

Short Sale Pricing The short sale asking price is usually higher than the pricing at the foreclosure auction — a 19 percent loss of the loan balance for short sales. In contrast, a foreclosure typically nets a 40 percent loss of the loan balance. In this regard, lenders prefer short sales over foreclosures.

Benefits of buying short sales A short sale is still owned by the homeowner, who owes more on the mortgage than the home is worth. “The short sale is, in my opinion, far better than buying a foreclosure because the home is generally in better condition because it’s been occupied,” she says.

10 Steps to Buying REO Properties

1. Step 1: Browse Available REO Properties.
2. Step 2: Find a Lender and Discuss REO Financing.
3. Step 3: Find a Real Estate Buyer’s Agent Who Knows REO Homes.
4. Step 4: Refine Your List of Lender-Owned Properties.
5. Step 5: Get an Appraisal on Your Ideal Property.
6. Step 6: Make an Offer.

You should probably make your initial bid at a price that’s at least 20% below the current market price—perhaps even more if the property you’re bidding on is located in an area with a high incidence of foreclosures. If you can pay for the property and any necessary renovations in cash, you’re in an enviable position.

When the homeowner agrees to a deed-in-lieu of foreclosure, the property becomes part of the bank’s portfolio of assets. Foreclosed properties not sold at the public auction are repossessed and become bank-owned. Bank-owned properties, also called REOs or real estate owned, have completed the foreclosure process.

The basics of wholesaling REOs involves finding listed bank-owned properties and putting them under contract, only to sell them as-is to other investors. You are not flipping houses in the normal sense. You aren’t intending to close on the house, fix it up and sell it.

Investing in distressed real estate properties can provide greater benefits in several key areas, such as cost​, market value, and potential returns. A primary way to profit from REO investments is to renovate a distressed property, then sell it for more than the initial purchase price plus renovation costs.