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What is an REO? REO means Real Estate Owned. Everyone is talking about REOs these days. But before you consider buying one, there are a few things you should know about REOs. These properties are generally owned by banks, credit unions, mortgage companies and sometimes private companies. It has become increasingly common for the news to report foreclosure issues and homeowners losing their houses and other effects of the mortgage crisis. As a result there have been dramatic increases in the marketing of REOs to the general public. It used to be that you could barely get your hands on lenders’ foreclosure lists. But these days, everyone is trying to sell REOs.

The people that are being marketed by these REO sellers are mainly first-time and minority potential homebuyers. Fannie Mae works with many companies to help these types of homebuyers realize the American Dream of owning your home using reasonable and affordable loans. There has been a shift in the industry from marketing REOs to those who “flip” houses to first-time homebuyers. The dramatic increase in foreclosures has left many lenders with high inventories of REOs, resulting in potentially advantageous opportunities for individuals who never has access before, to gain access to the real estate market. Additionally, the number of foreclosures is allowing simple real estate investors to diversify and expand their portfolios.

There are many laws regarding foreclosures and the process. Mainly, when the property is in the pre-foreclosure and auction stage, the bank (owner) is only legally entitled to its losses and expenses. This is to say that the bank (owner) is not entitled to gain a profit from the sale. This changes however, after the property has been foreclosed on it becomes an REO.

REOs are often considered to be fabulous starter homes because the sales prices for these properties is generally lower than that of a similar non-REO property. In today’s market however, this may not always be the case. This is mostly due to the fact of the number of such properties in the market. Even though a property is an REO, it does not mean that the owner will not make a profit off the sale. Remember, after the foreclosure process, the REO owner is now allowed to make a profit, which may affect the sale price. A buyer will generally be more likely to get a lower price when purchasing a home in the pre-foreclosure or auction stage. Let’s say now you’ve decided you want an REO. You should know there are risks associated with this “great deal” you are getting. When considering your REO purchase, make sure you have access and contact information for various experts who will guide you in the inspection process.

You will need a Realtor, who can protect your interests and make sure you get the best deal possible. Your Realtor will be able to generate reports for you showing comparable sales prices which will enable you to assess whether the asking price for the REO you are considering is appropriate. There are some statistics that show the average price of an REO is 15 – 30 percent lower of comparable sales prices. However, there are REASONS for this. REOs are sold AS-IS. This means that what you see is what you get. You will need a qualified home inspector to guide you with this step of your REO purchase process. Only a qualified inspector will be able to reveal latent flaws or issues that you will need to consider before you purchase the REO. You will need to factor in the costs of potentially repairing, replacing or rehabilitating the necessary sections of the property into the price you will be paying. REOs take longer.

When purchasing an REO, you are not dealing with Joe and Jane Smith homeowner, you are dealing with either a Bank or an Investment Company. The decision making and sale approval process in a business takes much longer than with individuals. It could take weeks to get an approval on your offer. Additionally, even though most banks will remove tax liens and occupants (if need be) from the property, in order to protect yourself, you should perform a title search. Now you may not personally be able to do this, which is why you will hire a company to perform such a search for you, and the results may take up to a week to review. Another potentially time-consuming process is getting an appraisal. As a buyer, you should not trust the seller’s appraisal blindly, get your own!

Any time or money you spend beforehand may well be worth it in the long run. You want to know that you are getting what you are paying for! With the right amount of patience and knowledge and the care of a Crestico Agent, buying an REO will seem like a breeze. We have agents that specialize in purchasing REOs. When you work with a Crestico Agent, he/she works for you to get all the experts you need! From inspectors, to title searches to appraisers, your Crestico Agent takes care of it all for you!! Call us today!