Bank Owned Foreclosure properties, or more commonly referred to as Real Estate Owned (REO’s) are flooding todays market at record rates.
Buying an REO property can be a great way to save money and get a fantastic deal, but it can also be a challenging and frustrating process, so be prepared.
A Guide to Buying REO’s
What is an REO Property?
A property that is owned by a Lender, typically a bank, after an unsuccessful sale at a foreclosure auction (or Sheriff Sale). The Lender will usually set the opening bid for at least the standing loan amount, and if there are no interested bidders, the bank will legally repossess the property after the redemption date.
How do banks sell their REO’s?
Often the Banks hire Asset Management companies to help move their REO Inventory. These management companies work closely with independant Real Estate Agents to help with the marketing and selling of these properties.
How do Banks decide on a price?
Once a Lender takes over a property, they need to determine a current market value. This is typically done by ordering one or more BPO’s, or Broker Price Opinions, which are completed by specially trained Real Estate Agents in the respective markets. Based on their findings, a property is usually priced within 10% of the determined value, although there are sometimes exceptions. Condition is also factored in when determining an opinion of value.
Should I make a low-ball offer?
REO’s are priced to sell quickly, but as close to market value as possible. The perception is that banks are desperate to get rid of these properties, but it is rarely the case. Once a sale price is determined, exposure on the market and an absence of offers is usually what drives price reductions. Low ball offers are often not taken seriously.
I offered what they are asking, but still didnt get the house. Why?
Lower than market pricing often draws multiple offers, which can result in a property selling for far over asking price. Do your homework. Understand the market you are shopping in, and ask your Realtor questions. Success often comes to those that make their offer based on value rather than list price. Remember that declining market values have already paved the way to huge discounts. Anything further is just a bonus.
Are REO properties in poor condition?
Some are, some are not, but because Lenders have aquired these properties though foreclosure and know virtually nothing about them, most are sold as-is, so its up to you to conduct your own due dilligence and perform an Inspection so you know what you are getting into.
Will REO banks make repairs?
Maybe. Sometimes repairs are made before the property hits the market, and in some cases repairs can be negotiated, especially if the repair is required by the new Lender in order to approve the loan (ex. FHA and USDA).
Ive made an offer, so when will I get a response?
Again, depends. Typically it takes 24-72 hours for a response, but have your Realtor find out when submitting your offer. Offers with response time contingencies are usually ignored, or can void your offer before it is ever reviewed, so be prepared to be patient.
Where do I find REOs for sale?
REO property lists are all over the internet, but keep in mind that many are outdated, inaccurate, or incomplete, and many charge a fee. There are thousands of REO’s available in our market, but the only way to get an up-to-date and complete list is to work with a knowledgable real estate agent. The Seller almost always pays their commission so it will cost you nothing, but could save you thousands.
