REO means Real Estate Owned Property wherein the lender is the owner which includes a bank wherein foreclosure auction, the property was not sold successfully. When one property that is foreclosed fails to sell for a specific amount needed in order to cover the loan, the bank usually takes ownership.
What Are Real Estate Owned (REO) Properties?
Whenever a government entity or a lender owns the property instead of an individual or a company, it is referred to as REO o Real Estate-Owned Property wherein it can happen in a number of different ways. Moreover, if the original, first and authentic mortgage holder fails to fulfil their loan, an institution or a bank frequently are the ones who become the owner of the property. And if that happens, the homeowner may be able to sell their house or property and then pay and hold responsible for their debts through such a short sale.
What are the Pros of Real Estate Owned (REO) Properties?
Just like any other things, Real Estate Owned Properties have advantages and disadvantages too which you might want to look at in order for you to know if this is right and really meant for you. Below are the advantages of REO Properties.
- The lenders have so much energy and motivation to advertise: Who likes having something that can be a source of profit but just sitting there? No one. That is why Owners of Real Estate Owned properties are very interested, willing and motivated to sell it and will really do everything possible in order to get the property sold as soon as possible. This could give you a leg up in negotiating as well as potentially much better terms.
- Competitive pricing: As mentioned above, lenders are very eager to advertise or sell which results in lower-priced properties than the others on the market. However, This does not necessarily imply that you will get a good deal on a bank-owned property for a reason that lenders must also cover losses. Moreover, it may mean that you might not need to worry with regard to inflated prices.
What are the Cons of Real Estate Owned (REO) Properties?
- Real Estate Owned Properties are sold as it is: Lenders with this kind of properties tend to try to reduce losses that is why they sell them as is. As a result, they will not put any money into a property’s upkeep before marketing and trying to sell it. You must agree to purchase the property as it is, which means you may have to pay for costly repairs or any hidden damage. As a result, it is indeed critical to get a professional inspection.
- Other expenses might be hidden: There may also be other high-cost issues in addition to the general renovations that are required. It is possible that the property has a lien on it. You can prevent this problem by purchasing title insurance, however, that could be an addition to your expense.
How to Buy Real Estate Owned Properties
Anyone would want to have some cash including banks and generate profit from their properties. Below are some steps on how to buy a Real Estate Owned (REO) Properties.
- Get Pre-approved for Financing
- Locate REO Homes
- Think about Hiring a Buyer’s Agent
- Make a Proposal
- Get a Home Inspection
- Perform a Title Research
1. Get Pre-approved for Financing
It is best to have a home loan that is pre-approved before you even begin looking for a home for you to be able to know and set your budget straight. If you are paying cash, you will need to have a letter which is a Proof of Funds that is from the financial institution which is the one who is holding your funds. This informs the seller’s bank that you really are financially capable of buying the property.
2. Locate REO Homes
After setting your budget, it is the right time that you to start looking for listings that are aligned with your budget. And here are some important things to remember:
- Look through the MLS or also known as Multiple Listing Service, wherein it connects all of the sellers, buyers, as well as brokers in the industry of real estate.
- Inquire with a Real Estate Agent as they are the ones who know where to direct you when it comes to Real Estate Owned Properties around your preferred area.
- Look for listings that are specific to a particular lender. You may also lookup Real Estate Owned Properties straight on a lender’s website.
- Examine the websites of different real estate around the country as you can search and lookup for Real Estate Owned Properties in any city that you are interested in, for free.
3. Think about Hiring a Buyer’s Agent
Having your own agent is not necessary but it can help you save time and stress. They have such a fiduciary duty to represent your interests. Moreover, the seller usually is the one who pays the agent of the buyer, so you won’t have to pay anything extra to hire one. Ideally, you must work with an agent of real estate who has experience in dealing with regards to REO before.
4. Make a Proposal
There will obviously come a time wherein you will have a chance to make or create an offer to such a lender after you choose the right property that fits your interest. If you work with such an agent, they can be able to help you figure out which offer is most likely to be approved and will submit the proposal on your behalf. It is very vital to get this thing right for a reason that if you try to undercut the bank, they will almost certainly dismiss your offer and proceed to the next potential buyer.
5. Get a Home Inspection
If you are thinking and planning to purchase an REO property, it is important to keep in mind that a home inspection is a must. Such homes are being sold as it is which means that you will be the one who is responsible for such necessary repairs. It is also possible and much better than the property where you are interested in is in great condition. A thorough inspection will reveal any concealed problems or issues and give you an estimation of how much you will be spending after you buy the house in order to make it much more livable.
6. Perform a Title Research
Performing title research is very essential as there might be a lien on the property that is not good and you would not want to encounter. The former owner, for instance, may have indebted property taxes. A few kinds of liens endure the process of foreclosure, making you liable for them once you purchase the property.
What is the Difference between REO and Foreclosure?
Real Estate Owned Properties or Bank-Owned homes is a term that refers to real estate that is owned by what is called a lender who is also responsible for the property’s upkeep as well as property taxes payments. If a mortgage lender gives up a home for a reason that the owner had already decided to end payments on the loan, it is known as foreclosure. Although each state’s foreclosure procedures differ, in general, lenders usually do not start the process of foreclosing until the owner has already managed to miss any payments. If all else fails, the lender will dismiss the homeowner, and as a result, the lender will take possession of the property, and try to sell it. The main difference between the two is that a foreclosed property is being reclaimed by a mortgage lender while on the other hand, a real estate owned property has been reclaimed already. However, the lender has not really been able to make it for sale or to sell it.
Is Buying an REO a Good Idea?
Yes, purchasing real estate owned property can be a good idea as its price is usually low for a reason that the lender wants to quickly sell the property. Also, the lender wants an easy and quick process.