What is an REO Home?
What is an REO Home?
The term REO is an acronym that means Real Estate Owned. The term REO home relates to property that has reverted to the mortgage lender through the foreclosure process. It is a well known fact that lenders do not want to hold real estate. Lenders are in the lending business and not the real estate holding business. Knowing this can offer an opportunity for an investor or buyer to buy a property at prices lower than the current market value of the property. Of course, this is dependent on both the condition of the real estate market at the time of the offer and the motivation of the lender.
The Advantages of Buying an REO
The main advantage of buying an REO is that any previous existing liens on the foreclosed property have been cleared by the foreclosure process. Therefore, the buyer or investor will be receiving a clear title on the property. This purchase is similar to the same risk of buying any other parcel of real estate.
How To Find REO Properties
The most efficient method of finding REO properties is by searching on the internet for companies that list foreclosure properties such as Foreclosure.com. You could also try to locate real estate companies with agents who specialize in foreclosed properties. You could attend foreclosure auctions and learn of the properties that were sold to lenders. You could cold call mortgage lenders and ask
to speak with personnel in charge of REO. You can tell the REO Officer what type of property you are looking for in terms of location, price range, floor plan, etc. Be aware, that with the excessive number of defaults, you must be qualified to make a serious offer on an REO. A lender is not interested in a "tire kicker" thinking to make a quick profit but also is going to have problems making mortgage payments.
Analyzing an REO Property
In order to determine a fair market value for the property you are considering buying from the lender you have to do your homework. Your initial research will involve obtain comparable sales for the area or neighborhood you are considering. You can contact a real estate agent who has this information readily available by researching their Multiple Listing Service. You can do the research by contacting the local or county assessor to determine the latest sales. Of course this will take more effort. On line services such as Zillow.com can also give you an estimate of the market value of your property. Be aware that it only an estimate of the value and may require further value adjustment.
The next big factor that you must consider is the status of the real estate market itself. In a strong market, it will require a higher offer to purchase the property than a weak market where there can be a significant adjustment to the asking price. However, what you will not be aware of is how flexible the lender will be with regards to your offer. The usual guideline is to make a fair price offer and wait for the acceptance or rejection. When considering your offer for an REO you should also determine the cost of repairs needed for the property as well as the amounts required for any inspections and closing costs.
When you are considering a property foreclosed through a federal agency such as the VA or Fannie Mae you will probably be required to work through a licensed real estate agent. These agencies usually do not deal with buyers directly.
