If you’re a buyer today, your Realtor is faced with those 3 types of listings. Which listings should she show you? Here’s a look at the pitfalls of each.A short sale is simply an owner trying to sell their home for less than what they owe on it. Sounds simple, but it gets a lot more complicated for several reasons.

First, many short sales are homes that were bought at the height of the market, and often with 2 loans. The primary “first” loan was for 80 or 90% of the purchase price, and the “second” was for the balance of the purchase price – no “skin”, or equity, in the deal on the part of the homebuyer.

The first complication in this deal is that the 2 loans may be from 2 different institutional investors – whose ox gets gored? The first is in a much stronger position, but the second is trying to forestall taking a big financial hit and will refuse to cooperate on a short sale unless the first also takes a hit. Generally, it’s better (for the buyer and seller) if both loans are with the same investor because those issues (hopefully) can be resolved “in house”.

Second, all lenders are overwhelmed with requests for short sales. It’s a tsunami thing. They just don’t have the resources to handle the volume. It’s not uncommon for 60-90 days go by before the lender even looks at the offer. Meanwhile, that first buyer has moved on. But when the file comes up for review, it’ll be assigned a “negotiator” – sounds impressive, but it’s not. If all the ducks don’t instantly fall into place on the negotiator’s spreadsheet, it’ll get dropped into the abyss and forgotten. They don’t have time to “figure things out” and work to close the deal.

This is how it looks and works from the perspective of the Realtor representing a short sale client:

You do all the normal “Realtor” stuff up front to market the home – open houses, put on the MLS, etc. You desperately want that first offer to submit to the lender, to get in the queue. You may get multiple offers. Most lenders don’t want to see multiple offers. They don’t judge offers. All offers must be “highest and best”, and that one offer must be decided upon by the Realtor (and her client) and submitted. There are no counter offers.

You now create a form called a HUD-1 that shows exactly how much net this will bring the lender(s). The seller gets absolutely $0. The net proceeds will often result in a loss in the hundreds of thousands of dollars to the investors.

But time marches on, and those first buyers have moved on to other deals. Their offers have expired. Finally, that first offer you submitted 3 months ago comes up for review, but no more buyer. So you scramble to get a new offer. You’ve probably dropped the price from 3 months ago to entice a new offer, and you hope for the best.

But assuming you’ve still got the buyer who’s offer is before the negotiator, don’t be surprised if the negotiator asks for the impossible – can you close escrow in a week? The short answer in NO! After you’ve quit laughing (to yourself of course – never with the negotiator!), you try to explain to the negotiator that the buyer must do their home inspection, the buyer’s lender must order an appraisal of the property, preliminary title report must be ordered in escrow, loan docs must be prepared and signed – this stuff takes time!

Because your Realtor knows all this, she hates showing you short sale listings. She’s afraid you’ll want to make an offer on one!

REOs (Real Estate Owned)

These are lender owned properties. They’ve been horrifically driving down values for sellers but creating a bonanza for buyers. A different set of rules apply for the buyer.

First, a buyer really needs to know value, because most REOs are in the entry level market where most of the buyers are. Often, when an REO comes on the market it’ll be competitively priced, and if you think you can merely submit the asking price you’ll be left in the dust. Generally, you’ve got to submit your “highest and best” offer right out the gate. There probably won’t be any counter offers.

This is scary for most buyers because of two conflicting emotions: fear and greed. They’re afraid they won’t get the deal, but they absolutely want to buy the home as cheaply as possible.

With an REO, you’ve got to submit what is right for you. If you get the deal, congratulations. But if you don’t, so be it. This can be a real roller coaster ride emotionally!

Finally, a “regular” deal

All Realtors hope their clients fall in love and submit an offer on a “regular” deal. A homeowner selling their home who has equity in the home, isn’t distressed financially, etc. This is a “normal” transaction where you’ll get a timely response to your offer, go through a normal escrow in a normal time frame, close escrow as scheduled…

Dream on!