Bank Owned Property vs. Short Sale Property: What’s the Difference?


What’s the difference between banked owned properties and short sale properties? We get asked this question a lot, especially in the past few years since the downfall of the real estate market, so we thought it would be a good idea to post an article about it. Many people think when a home is on the market as a short sale that it’s banked owned. That is not the case. We are about to explain the difference which hopefully will help educate others on the basic difference.

Bank owned properties are real estate properties acquired by banks through foreclosure. This means that bank owned properties have already been foreclosed upon and the the property is now ready for the foreclosure auction process. Foreclosed properties at auctions are much cheaper than a traditional home on the market because the banks want to get rid of the property as soon as possible, unlike short sale properties where banks will still seek close to if not all the actual debt amount. Short sales are handled while the homeowner still technically owns the home, and a short sale is not always due to the fact the homeowner is behind in their mortgage payments, although that is usually the norm. Sometimes a homeowner will put a home up for sale due to a decrease in income, perhaps an illness in the family has overrun them in medical bills or something unforeseen has happened in their lives and renting a home is a more suitable financial option due to their circumstances. A homeowner in these types of situations; although current with their mortgage payments, try to sell the house before they get in over their heads. The reason why the sale is considered a short sale is because the current market value of the home has dropped but the homeowner still owes the bank more than the house is currently worth, therefore shorting the bank what it is rightly owed on the original debt, hence the word “short sale”.

What’s safer to go after as a home buyer? If you are looking to get into a bigger home for less than the same type of home that is priced at actual market value, you don’t need to get into a home right away (possible delays can occur during the short sale process) and you just aren’t prepared to jump into the foreclosure auction process, then a home that is going to be considered a short sale property may be the best option. However, if you are properly educated and financially able to heed the rules that are required to participate in an auction than you may want to pursue a bank owned property. Court auction real estate typically requires cash on hand and fast transactions, look into the terms and conditions thoroughly to make sure you are not wasting your time.

Each bank owned property has its own story. Homes that have gone through the foreclosure process may have been sitting unattended for months, maybe even a couple of years depending on when the home owner vacated the property. Investment homes that have gone into foreclosure may have sat for even longer than a home that was someone’s primary residence. Home buyers looking into purchasing bank owned properties should consider the property’s structural integrity. It is important that the property has retained its bones, so to speak, meaning its foundation, roof and exterior structure. The integral elements should still be present and in good condition. It is important for these parts to be solid because everything else can be replaced and repaired without ruining the property’s structure.

Inspect for the presence of wood destroying pests and molds. This is a common occurrence especially with foreclosed properties where power is shut down and the house is left uncared for during the course of the foreclosure process. Wood rots easily and develops pests, molds and mildew faster especially at enclosed spaces and in humid climates. With this in mind, prospective buyers should inspect these properties and watch out for these signs before actually committing to an investment. It is important that home buyers themselves along with a professional and licensed inspector do the inspection so as not to miss anything that can the lessen the value of the property. As long as you know what to look for and what to avoid, and are prepared for the worst, bank owned properties are actually best purchase options.

Buyers of bank owned properties are not necessarily only for important businessmen or families with serious plans of buying homes for their families. Some known buyers of bank owned properties are interior design artists and handy men looking for properties to be remodel. More often than not it is the structure of these properties that draws the buyer to make the purchase. It is also seeing its potential to become a better house or property after a good remodeling process, which requires a good artistic eye.

Whatever your situation, do make sure you are surrounded by industry professionals that will help you with any questions you may have, whichever route you choose, that will make the best financial choice for you.
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