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REO  is the short form for Real Estate Owned.  The real meaning is the lenders, usually the banks, have taken over the properties and are actually owners of the properties.  When the properties put up to the market for sale, the lenders/banks had already come up to an agree upon for sale price so usually if the buyers offer the asking price, it will be approved.  However, some lenders/banks will still listen to the sale experts marketing strategy, i.e. to ask for a ridiculously low price to encourage strong competition and thus beat up the sold price.  Anyway, the buyers involved usually can close the escrow within a reasonable time like a normal sale.

Short Sale means even after the sold price of the property is still too short to pay the mortgage.  In this case, the individuals are still owners of the properties and not the lenders.  However, since the homeowners cannot bring additional money to pay back to the bank/lenders, the sold price has to be approved by the lenders.  Since in this case, it is the homeowners who initiated to sell the property to avoid foreclosure, the lenders/banks involved had not yet came up to an agreed upon price prior to the property put for sale in the market, every offer has to be reviewed by the lenders/banks involved.  Thus it usually takes a much longer time for closing.

When a property put up on the market for sale, we call it an active listing meaning the seller is actively looking for buyers.

When sellers and buyers get into a written contract with an agreed price and terms and escrow has been opened, the status of the active listing will be changed into contingent.  At this point, there are still at least one condition that allow the buyer or seller to cancel the contract without paying any penalty.

However, if every term has been settled and it is only a matter of waiting for the funding to arrive (usually from the lender) or waiting for the seller to move out (when on the contract stated that the property has to be delivered vacant), or something else need to be done, then the contingent property is changed into pending.  Once the property is at a pening status, anybody who wants to back out or cancel the contract will incur some fee to pay.  Usually, it will be the initial deposit up to 3% of the total purchase price unless otherwise stated.

After working hard for a few weeks with my investor client, she finally decided to make an offer on a Bank Owned property at Pleasanton, California.  As my routine practice, I provided her with the home profile, the recent sold comparables and she made a full price offer.  Since I always urge my clients to put an inspection contingencies (this is almost a must for my clients) and upon acceptance of the offer, the listing agent called me and emailed me the inspection reports on file.  The house happened to have been shifted previously (may be at 1989′s earthquake) according to the home report.  The foundation is intact and the termite is very minimum, only a few hundred dollars, and the price seemed to be the lowest in the area in respect to the conditions of the house.  In order to help my clients to make a reasonable decision, I asked the listing agent to provide an environmental report and he agreed and ordered it right away.  From the report, we found out the house was located within one mile of the fault zone and there was a nearby dam and during any rainy storm and in case the dam broke, this house may be washed away.   The worst part is the house was grounded to aweak sediments (soil deposited by the surrounding running river).   

The listing agent told me that this house used to receive $2500 per month as rental and it seemed to be very attractive to my client.  After I do the research on the rent price, my find out also supports this rental price.  My client wants to buy a house at a good location but the usual problem  is the rental income often times not in a good proportion of the house price.  What I mean is it could still be negative income for an investor even with a down payment of 35%.  For this property, my client will put 70% down payment and she can have a good positive income.

Here comes my dilemma:  If I tell my client to proceed with the purchase, she will listen and I will earn my commission income.  However, if I myself were the investor, I would back out from this transaction.  Of course, I would love to close this transaction but in view of three very important factors: fault, dam, river sediments, my client seriously considered my point of view and backed out from the offer.  Now, I need to work from square 1 again but my conscience feels at ease.

I think every real estate agent should hold up this ethnical standard.  What do you think?

Your opinions are very important to me.

Please feel free to put a comment or email me at justynato@sbcglobal.net.