If you are someone seeking to buy a new home but you don’t have a huge budget, you should consider buying a REO property. Buying a REO property has various perks and is a great way to make your home-buying dream come true without breaking the bank!
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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