A lot of my clients are asking about foreclosed houses - houses taken back by the bank - or short sales - houses listed for less than the total of loans on the property.  Such properties make up an increasing percentage of both active listings, and houses presently in escrow.

The big difference between the two, is that the bank has already completed the foreclosure process on the first type, and so, a faster, more definite escrow can take place.  Foreclosures account for less than 10% of present listing inventory, but more than 25% of current escrows.

Short sales are a different type of animal.  These are typically houses where the owner is behind in payments, but hasn't lost the house - yet.  Most short sales, especially in price ranges under $700,000., are deliberatly UNDERPRICED in order to encourage multiple offers, and to bid the price higher.  The MLS is now struggling to deal with a phenomenon wherein the listing agents of these properties already have up to 5 or 10 offers on these properties, but they are still presenting them as an active, available listing.

Obviously, only one of the offerers is going to eventually be the successful bidder - MAYBE.  Here's the rub.  Apparently, in about 50% of the short sale listings, the listing agent, in spite of their zeal to earn a fee, is not successful in navigating the plethora of offers through the lender's system, and the house eventually gets foreclosed, anyway, negating ALL the previous offers.  In the half that got foreclosed, the property usually eventually reappears on the market, frequently priced higher than it was as that seductively priced, potential short sale.

Unfortunately, this experience leaves a pretty bad taste in the mouth of the numerous "buyers" who had spent time trying to purchase the property - frequently, a lot of time.  Some short sale listings spend months, supposedly in escrow, only to fall completely apart, when the bank opts to foreclose, instead.

Is there good news here?  I think so.  First, there are a LOT of distressed properties on the market, ( in almost every price range! ) and there appears to be more on the way.  Second, most bank repossessions ( REOs, or, Real Estate Owned.) sell like a normal transaction, presumably to the first, qualified buyer to offer a price agreeable to the lender - usually a pretty good buy.  Yes, there might be multiple offers, but not nearly as likely as with a short sale listing.

Third, there are some agents, myself included, who know the system with short sales, and who know how to more effectively, and expeditiously get a property through the lender's system, for approval.  In the 50% of short sale listings that actually get approved, most of them are excellent buys, as well.

In any case, make sure that the property you are targeting thoroughly meets your needs, either as a place to live, or an a good investment ( rental.) property.  Location is still the primary criteria to hold to. Also, this is NOT a time to be thinking of "flipping" a property - buying low, to fix up, and sell for a profit, in a few months.  That's NOT likely to happen - not in Orange County, anyway.

If you are thinking of buying one of these properties, OR, know someone in distress, who needs to be selling, please give me a call or an email.  It would be my utmost pleasure to be at your service! 

Bob Phillips, of ReMax Real Estate Services, (949) 643-2100, or BobPhillips@Remax.net 

Talk to you again, soon.