Buy a Foreclosure: REO, Auction, Short Sale, and Pre-Foreclosure Without Hidden Disasters

  1. Compare the four distressed-sale channels before choosing one
    25 min

    Use this before you chase any distressed listing. The four channels differ less in price than in what you can see, who occupies the place, and what a lender will accept.

    ChannelTypical discount vs retailCondition visibilityOccupancy riskFinancing
    Pre-foreclosure (owner sells after default notice)~0–10%Full inspectionOwner still lives thereStandard mortgage
    Courthouse or online auction~10–25%None to drive-byHighest — occupants ride throughCertified funds, days
    REO (bank-owned)~5–15%Inspection after acceptanceUsually vacantStandard mortgage
    Short sale~5–15%Full inspectionSeller occupied until closeMortgage + lender approval

    One exception worth memorizing now: HUD’s First Look window bars investor bids during the opening days of a HUD-owned listing (about 30 days); Fannie Mae’s equivalent runs about 20 days.

    Pick one lane, not four. Copy the table into your deal file, replace the sample discount ranges with percentages from your own comparable sales, then circle one primary channel that matches how fast your money moves. Beside the circle, write that channel’s top two risks — for auctions usually blind interiors and surviving liens; for short sales, lender delay and junior-lien payoff gaps. Searching all four channels at once is how buyers chase everything and close nothing.