Tips for Buying REO Properties

In this day and time, it isn't uncommon to hear someone talking about what a fantastic deal "so & so" got on an R.E.O property. You may have wondered what this "R.E.O" actually meant ( And no, it has nothing to do with the 70s & 80s era rock band REO Speedwagon.) R.E.O stands for "Real Estate Owned." This in turn means the property has foreclosed and then failed to sell on the courthouse steps via auction. Due to the property's failure to receive a bid that met at least the bank's reserve price, the property reverts back as an asset on the bank's balance sheet.

At this point, the bank will hire a real estate agent to put the property on the market, usually at reduced price to encourage a quick sale. These lending institutions are extremely motivated to get these "non-income producing assets" off their balance sheets. Banks are in the business of lending money and earning interest. In a declining market, holding an asset that is continuously losing value and is costing money in insurance, taxes, maintenance, etc....... it just doesn't make sense (or cents!)

"Hey I thought this article was going to be about tips for buying REOs, not an all inclusive course in understanding REOs!"

Ok, Ok, I hear ya. I'll get the show on the road.

1.)Easy to Find- Today, REOs are easier to find than ever before. There are many websites such as realtytrac.com or foreclosurepoint.com that can help you locate foreclosures in your area. However, the best resource for finding REO properties is to ask a local real estate agent to provide you a list of REO properties that meet your specifications.

2.)Leverage- When buying a foreclosure at auction, you will need to have cash on hand and you usually can't inspect the property prior to purchase (=) Disadvantages. Also, there may be liens against the property that you don't know about (=) more trouble for you.

On the other hand, when you buy a REO property, you can inspect it before hand and you can finance your purchase with a mortgage, which means more cash remains in your hands ( a much better feeling!) Plus, when a bank repossesses a home it clears any outstanding liens.

3.)Get Repair Bids- Most of the time, homes where owners neglected to pay their mortgage, also neglected maintenance. Also REOs may have been sitting vacant for some time, which makes the homes more susceptible to vandalism. To avoid underestimating how much work is needed and the cost, it is best to get a contractor to give you an estimate of restoration costs and a time frame. Isn't it great this can be done before you purchase the home!

4.)Low Ball- Don't expect the bank to accept the first offer you throw at them. REOs are usually already priced aggresively at below market values. However, depending on the size of the bank's foreclosed inventory and the time the home has been on the market--the greater your chances of nabbing a great deal.

5.)"Tick Tock"- While some lenders have streamlined the process, a lot of lenders are experiencing extreme backlogs which can cause their responses to take weeks and in some cases months. During that time, someone else could come along and outbid you. Therefore, you should probably have multiple homes in mind. Also it helps to have your fnancing pre-approved and to follow up with the lender often.

Hopefully, these tips will put you on your way to snagging some of those "fantastic deals" of your own!