What is a REO
property?
REO stands for Real Estate Owned property, also known as a
bank-owned property.
What does that mean?
A real estate owned, or bank-owned property, means that it is
a property that has reverted to the mortgage lender after a failed attempt to
sell it during a foreclosure auction.
Still not sure what
that means?
When consumers fail to pay the
mortgage on their home, they may end up in default and can lose their house to
foreclosure. When foreclosure happens,
the ownership of the property will revert to the lender who is the official
title holder of the property. The
property gains the title of being real estate owned after all the legal stages
of foreclosure are completed and the lender becomes the sole owner.
What are the pros of buying a
REO property?
- Get a Great Deal!
Because
banks and other financial institutions are in the business of money, not real
estate, they typically slash the asking price of a property when their books
are laden with REO properties. They do
this to remain competitive against properties being sold by private sellers and
to move the property quickly off the market. Often,
lenders will offer their properties at substantial discounts ranging from 25%
to 30% off of the fair market value.
These below-market-prices are quite enticing to bargain-hungry
consumers!
- Clean titles, paid taxes, and no liens!
Generally,
REO properties come with clean titles, paid taxes, and no liens. Lenders typically will expunge all second and
third liens, as well as delinquent taxes, HOA, and mechanics’ liens. It’s a much better feeling to buy a home with
no outstanding taxes. But, you should
never just assume that this is the case and therefore, be sure to get a title
check before making any purchase.
- Vacant properties can mean easier home inspections
REO
properties are usually vacant which is a huge benefit. Investors can save a good amount of time,
energy, and money because the eviction process has already been taken care of
by the bank. Since the homes are
generally vacant, you should always request to inspect the home before a final
closing on a deal. REOs are usually
distressed properties left behind by previous owners so home inspections are
highly recommended.
- No homeowners means you deal directly with the bank
Vacant homes mean not having to deal with emotional
homeowners, no personal and emotional ties to the home, to reluctant owners, no lawsuits, and
more. It’s just one less stressful
aspect of buying a home that you wouldn't have to worry about.
- The potential for lesser down payments and lower interest rates
Lenders may be willing to waive some closing costs or
possibly offer lower interest rates or a lesser down payment. Don’t be afraid to ask!
- More room for negotiation
Just because the banks want to shorten their list of
properties doesn’t always mean that the properties will always be a steal. The nice thing is that banks are eager and
motivated sellers and therefore, you should always consider submitting a lower
offer. When asking for a lesser price,
you should undoubtedly substantiate the reduced price in writing and keep your
case documented for your own good.
Providing photographs and cost estimates for repairs will help in
supporting your lower offer amount. You should
also consider negotiating the home warranty, concessions, and other buyer
benefits.
- Potentially better opportunities for financing
If you have good credit, many banks will often loan the full
price of the foreclosed property or even more.
Only a 10% down payment will usually be required for a foreclosure that
is intended to be used as a rental. As
for foreclosure investors, if they have a large amount of equity in another
home, they may obtain a line of credit from the bank to purchase a foreclosure. When that line of credit is converted to a
mortgage, no down payment may be required.
Be sure to check with your bank for their full details.
But, of Course there
are Some Cons to Buying REO Too….
- Don’t expect much sprucing up to be done to a REO property. In order to minimize their losses, banks have a tendency to invest very little when it comes to fixing up a property which is why they are sold in “as is” condition.
- Additional paperwork and strict underwriting procedures may be required in regards to the loan because banks want to avoid regaining ownership of the property for a second time.
- Obtaining disclosures in regards to the history or condition of a REO property is not a guarantee which can certainly pose as a challenge.
- Due to the “as is” condition of many REO homes, the cost of repairs can definitely add up so be sure to buy wisely. You don’t want to end up spending more on fixing up a property than what it’s worth.
Other
Tips to Keep in Mind When Buying a REO Property
- Shop around! Be sure to compare the asking price of the bank with the prices of other comparable homes in the area. This is will help you gage what you should be spending on that property.
- Title checks are very important. Do a thorough search of public records for any liens or outstanding taxes. As mentioned earlier, many REO properties come with a clean slate when it comes to property taxes and liens but, it’s should never be expected. You can perform a preliminary title check on sites like RealtyTrac and then hire a professional title company to run a full and insured title search before closing on a deal. If any common liens are placed on a property due to unpaid loans borrowed against the property, taxes, or unpaid mechanics liens, you may have to pay off the liens on the foreclosure that you are attempting to purchase, although you are not the only who failed to pay the property taxes.
- Always be smart about your money!
- If you’re seriously interested in buying a home, you should get pre-qualified for a loan. Getting pre-approved by the lender that owns the property may help you stand out better as a good candidate for buying the property.
- If you are a REO investor or just a home buyer that is considering a significantly damaged home, keep in mind that your financing options may be limited. For example, VA loans can be more difficult to get if the property isn’t in move-in condition.
- Do your homework before you make any offers.
- Be sure to add in the costs of any repairs and renovations in your offer price.
- Be prepared to be patient! When placing an offer for a REO home, it can take weeks to get a response. REO offers are typically reviewed by several individuals and companies which takes time.
- See
a REO professional!
Why an Agent like Myself
is Your Best Choice When Buying REO
I am a real estate agent that sells all types of home in
different price ranges, conditions, and areas.
I know all that there is to know about selling privately-owned homes and
I also specialize in REO and Short Sale properties. I have gone through extensive training to get
to where I am in the REO industry. I
have worked with countless REO professionals and agencies. I have qualifications, certifications, and numerous
memberships in the REO industry. I can
help you become well-informed on REO and non-REO properties and help you make
the best decision possible for your home-buying needs. Not all agents have the knowledge and experience that I have
of both REO and privately-owned homes. I
have worked hard to be able to be the best agent possible for potential home
buyers of all sorts of properties.
Be sure to contact me for any of your home buying questions or
inquiries. I am here to help!
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