Three Main Types of Real Estate Sales

Beginner Real Estate Sale Terms 

With the stock markets hitting all-time highs and real estate market recovering, you start to wonder if it will keep going higher or correct anytime soon. Did most of us miss the wave up? Is it too late to buy or are we still far from the top? At the end of the day a house can be viewed as a living expense versus an investment. We don't have a crystal ball and there is no holy grail - therefore there is no use in trying to time the real estate market. If you need a place to live then you need a place to live. Having said that, for those of you interested in learning more about real estate or becoming a first time home buyer, below are some key real estate sales terms you should be familiar with.

Standard Sale

A traditional standard sale is where the seller has equity or value in the property exceeding that of the amount he or she owes. These types of sales are more appealing to buyers given the shorter close time compared to a short sale. Typically escrow closes in 30-45 days. Escrow is money held by a third-party to ensure that the parties involved in the originating transaction have contractually fulfilled the agreed upon conditions. Upon fulfillment, the third party will disburse the funds to the appropriate party/parties.

Short Sale (Subject to lender approval /approved) 

A short sale is also known as pre-foreclosure. When the seller owes more than that home is valued at, he or she is considered "underwater". If the bank agrees to take a short-pay on the original loan through the sale of the house, the sale will be considered a short sale.

For example, suppose the loan amount was for $200k on a $300k property say five years ago. Today the property is valued at $100k. Selling the property will not cover the seller's debts.

Should the seller want to sell the an "underwater" property, the burden of proof lies on the seller to show the lender that he or she has experienced severe hardship which can be a job loss or divorce. If approved, this means that the bank will have to take a loss on the loan transaction. The process is a lengthy one because it requires the bank to agree on the short sale amount.

More often than not the property will be listed on the market before the bank has even approved a short sale price. Should the bank come back with a higher amount than what the property was listed at, all the originating offers will not be accepted by the bank. As a result this process can take anywhere from thirty days to six months. Still as short sale homes are offered at a discounted market value, investors feel that the time spent in pursuing them.

Real Estate Owned (REO)/Bank-Owned Sale

Bank-owned property or REOs are properties owned by the lender. For example, if an owner defaults on a bank loan the bank is forced to auction off the property at the original loan amount. Typically the property is not sold at the asking price because the reason why the owner defaulted in the first place is because he or she was unable to sell at or above the loan amount. Alternatively the lender can decide to allow a short sale.

If the property can not be sold then the lender will repossess the property and then the lender will try and resell the property on its own. Most lenders are not in the real estate business and therefore will typically remove some of the debts on the home and sell the house at discounted prices. There is a lot of paperwork involved and time that can be spent in dealing with the bank, which can drag on the process longer than the typical 30 days with a standard sale.

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