Tahoe Real Estate – What’s the difference between a Short Sale and REO/Bank Foreclosure?

A common question I often get from Tahoe buyers is “What’s the difference between a Short Sale and REO/Bank Foreclosure? Aren’t they both owned by the bank?”

It’s important to know the different types of sellers in the Tahoe market including Short Sales and REO sellers.

In a normal market, distress real estate sales are expected to make up 2-5% of the sales at anyone given time. Since the real estate market turned, Tahoe distressed sales are well above normal rates. In 2011 distress sales made up approximately 1/3 of all condo and home sales. That means 3 out of every 10 homes and condos sold were distressed and the remaining 7 sales were a standard sale.

Currently we have four different types of sellers in the Tahoe market today: the Standard Sale (68%), the REO / Bank Foreclosure Sale (17%), the Short Sale (14%), and the Court Approval Sale (less than 1%).

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What is a Short Sale? The current market value is less than the total debt owned. The seller does not have the money to make up the difference between the sales price and the debt owed to close the sale, there is a shortfall – a short sale.

In order to close the transaction, the seller has to get third party participation and the debt holder(s) have to agree to take back less in order to close the sale.

Unlike the name, there is nothing quick about the short sale process. A short sale is between a buyer and seller, with third party agreement to make the sale work. Unlike a REO/bank foreclosure property, the lenders do not own the short sale property, the seller still does.

What is a REO (Bank Foreclosure)? REO stands for Real Estate Owned. This is the term banks use to identify their bank foreclosed properties. At this point in the process, the lender has completed legal action against the property owner, and the bank is now the new owner.

REO’s are very similar to a standard sale. The owner, which is the bank, has the ability to agree to the price, terms and conditions that the buyer has proposed. As a buyer of a Bank REO property you need to know that the seller is most likely to propose an addendum to the contract you have given them. This bank addendum can dramatically alter the contract terms, conditions, contingency periods, and deadlines. You need to be prepared for the REO seller to give you little in the way of repairs, or concessions once you’re in escrow, and you need to be prepared for delays in getting the signed paper work back from the REO seller to you.

What is a Standard Sale? A standard sale is when an owner of a property puts it on the market for sale and they can close the transaction without the help from anyone else. This is our most common type of Tahoe real estate sale with over 68% of our Tahoe real estate transactions being a standard sale last year.

What is a Court Approval Sale? A court approval sale is similar to a short sale since a 3^rd party, the court, must approve the terms of the sale. A few common reasons for a court approval sale are – divorce, bankruptcy, or settlement of an estate. Court approval sales accounted for less than 1% of all sales last year, but buyers will come across them.

Knowing the type of seller you are dealing with will help you determine your buying strategy. Seller type can impact the condition of the property, the negotiation strategy, the type of contract used, the length of the escrow, property disclosures, possible repairs, not to mention deadlines, and their willingness to work with you. These are just a few of the items to keep in mind as you look at your Tahoe property options.

Tahoe Real Estate – Standard Sale, Short Sale, REO/Bank Foreclosure, and Court Approval Sales – know the different seller types.

Short Sale Homes for Sale Lake Tahoe:

Short Sale Condos for Sale Lake Tahoe

Want more home buying options? Check out the homes that are for sale in Tahoe City here:

Want to see what condos are for sale in Tahoe City? Here are the current listings:

For all of your Tahoe real estate needs –

Laura A. Allen | 530.414.1260 | Laura@TahoeLaura.com
BROKER ASSOCIATE, Tahoe Real Estate Agent
CalRE# 01473598
Coldwell Banker, Tahoe City, CA CalRE#01908304

All information is deemed reliable, but is subject to change, and/or correction without notice.

Tahoe Real Estate – What’s the difference between a Short Sale and REO/Bank Foreclosure?