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You may have called on a home for sale on the Monterey Peninsula by now and been told it is a “Short Sale” or a REO property or a Foreclosure.  Well, a short sale is a home where the current owner owes more on the loan than he/she can sell it for in the current market. Rather than let the home go into foreclosure, they try to negotiate with the bank to take less than the full amount of the loan.

You may wonder why the heck would the bank agree to this?  The bank does not want the property back. They may already have a number of foreclosed homes.  Agreeing to a short sale may be better for them financially than taking the home back thru the foreclosure process.  If the home is listed, the agent will try to negotiate with the bank on the sellers behalf. In some cases (more often now) a third party will negotiate with the bank.  This person may have experience negotiating with the bank so getting a short sale approved is then more likely.

If you are looking to buy - short sales can be frustrating, but they can also be an opportunity.  Look for short sales where there is a professional negotiator handling the process.  And look for properties that already have approval for a short sale from the bank. 

An REO property in many cases can be easier than a short sale.  REO means Real Estate Owned - as in owned by the bank. The property has already gone thru the foreclosure process.  The banks want to sell these properties as fast as possible.  In Monterey County the highest number of foreclosure, or Bank owned properties are in Salinas and Seaside, CA.  There will be more paper work involved in the process, but buying an REO property can be a good investment.

An REO is a property that has gone thru the foreclosure process, that means property owned by a bank.  There are a number of properties in Seaside, California that are bank owned properties.  Some (but not all) of the banks want to sell these properties quickly.  There are now houses that sold for say $650,000 a few years ago that are now listed for less than $400,000.  Some of these properties need a great deal of work, some only need minor repairs and improvements. 

The nicer of these homes are going into escrow at a pretty fast rate now.  When the price on these foreclosure properties dips under the $400,000 mark then they start selling.  It’s scary to buy a home when all the news is negative.  The cover of Business Week features a house melting - “the Real Estate Meltdown”!  Your family and friends may tell you that you are crazy to think about buying now and try to talk you out of it. 

But if you want a house because you want to own your own home, if you are going to stay put for at least 3 yrs and preferably 5 yrs then now may be the time to start looking!  Many people gave up all hope of owning a home on the Monterey Peninsula.  But a small part of the market has turned back the clock on prices.  Check out the affordable homes page of my web site and think about it.

Not too many people stand on the courthouse steps & buy a home in Monterey area at a foreclosure auction these days.  If you are thinking of buying a foreclosed home it is usually going to be a “REO” property or Real Estate Owned. This means the house has already gone thru the foreclosure process.  How do you do this, how do you get started?

First of all most REO properties are going to need work. This could just be cosmetic work such as new paint, new carpet, landscaping and misc. repairs.  So if you are comfortable dealing with a “fixer upper” property this could be a good way to buy a property.  But some of the REO properties could need alot of work including structural problems.  You will not have the safety net you would have if you buy from a home owner.  Banks do not need to fill out disclosure statements on any problems the house may have.

If you are buying from a bank there are two main options. You can try buying from the bank prior to them listing the house with a real estate agent. Or you can buy an REO property thru a realtor after the home is listed.  If you have done this a number of times, you can represent yourself. But be prepared to do a great deal of investigation regarding the property.  You will want a termite report, a home inspection and quite possibly a number of other reports.

If you decide to sign up with an agent to represent you, they should be willing to do a great deal of legwork on this.  You will need to get prequalified thru a lender and have your financing ready in advance.  You will need a substantial downpayment in most cases.

As a Real Estate Broker Associate on the Monterey Peninsula, I will work with a small number of buyers interested in REO or other distressed properties.  This is not for the faint of heart.  This is not for someone who wants to do a “quick flip” of the property. Just because it is an REO property does not mean the bank will take just any offer.  Distressed properties like these can be good for someone who can do alot of the work themselves.  I have one client who wants to buy a couple of properties for their children. So they are looking at long term investment. If you are an investor try out the Real Estate Investment Calculator.