As a real estate investor I am frequently asked, what does REO mean? REO is an acronym for real estate owned which refers to foreclosure properties owned by the bank. Once foreclosure homes are returned to lenders, the bank holds the property title and is responsible for maintaining real estate until it is sold.
Another question buyers want answered is what does REO mean in terms of obtaining reduced prices? In general, banks charge a slightly higher price for real estate owned properties. In addition to recouping financial losses from unpaid mortgage loans and the foreclosure process, banks remove attached liens and judgments in order to sell real estate with a clean title.
Bank owned homes are sold directly through each lender’s loss mitigation department or a designated real estate agent. Properties are sold in as-is condition at reduced rates. Buyers are responsible for repairs and renovations to return REO properties to livable condition. Some homes are in immaculate condition, but the majority requires some level of repair, while others are in need of complete renovation.
Most mortgage lenders obtain broker price opinion appraisals to arrive a fair market value. BPOs can be conducted as drive-by or internal inspections and are less expensive than traditional home inspections and appraisals. Although BPOs can provide an estimated home value, buyers should obtain a full inspection and professional appraisal prior to making an offer on the property.
If additional problems surface during the home inspection, buyers can use this information to further negotiate the purchase price. It is a good idea for buyers to take photographs of major repairs and obtain repair estimates which can be presented to the bank handing the REO sale.
REO properties can be a good option for real estate investors, first time home buyers, and individuals looking for an affordable vacation home. Investors oftentimes seek out bank owned real estate for use as lease-to-own homes and rental properties. Since REO homes are generally priced below market value, investors can earn a good return on investment by rehabbing the house or offering seller carry back financing.
Investing in bank owned homes can save home buyers and real estate investors‘ time and money. There is no need to spend time negotiating with creditors and tax agencies to remove liens and judgments. If foreclosed homeowners continue residing in the home, banks commence with eviction action. All the time-consuming and messy details are handled by the bank; allowing buyers and investors the opportunity to purchase and quickly take possession of the property.
Buyers of foreclosure houses quickly discover that lien removal and tenant eviction can be costly and time consuming. Buying a foreclosure home can take several months, while REO home purchases can be quickly expedited.
Multiple sources are available for locating REO properties. Bank of America, Remax, Prudential and Countrywide publish bank owned foreclosure lists directly on their websites. Countrywide participates in the Department of Housing and Urban Development Neighborhood Stabilization Program which offers grant money to buyers who purchase REO homes in areas hit hard by foreclosure.
First time home buyers can locate multiple REO homes for sale to obtain real estate at substantially reduced prices. Buyers can maximize savings by utilizing first time home buying programs and applying for NSP grants.
These are just a few options for buying REO homes. The Internet provides a wealth of information for locating distressed properties at reduced prices. Many local realtors offer seminars to help buyers learn about the advantages of buying bank owned foreclosure properties. Take time to learn the advantages and disadvantages of purchasing REO real estate. Doing so can help you further negotiate the price while locating the perfect home in the perfect location!
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Source by Simon Volkov