We determined in part one that a foreclosure is prior and included the sheriffs sale and time of redemption. An REO is when the bank owns the property free and clear and markets it through a Realtor.
Which is better to purchase? A foreclosure or an REO?
First, when buying a foreclosure or an REO one need not assume that anything is necessarily wrong with the house save that the previous owner failed to pay their monthly payment. However, because of the hurt and pain of that process some people will strip a property of appliances and other valuable items.
Second, when buying a foreclosure at a sheriffs sale it is possible that the home may still be occupied and that the owners may still have right of redemption depending on which state you live in. When you by an REO Realtor marketed property, the bank will have handled the eviction process and own the property free and clear before they put it on the market.
Third, when you buy a foreclosure at a sheriffs sale you are expected to have a cashiers check on hand for the amount of your bid. You then receive title to the property including any liabilities still attached to the property such as liens or back taxes. When you buy a Realtor listed REO, the home buying process is much like a normal purchase in that you offer a minimal amount or earnest money on the property and bring the rest at closing (usually in 30 days). In addition, liens and back taxes are the problem of the bank since they became the new owner who had to settle those liabilities.
Both REOs and foreclosures are sold as is without contingencies, however the far more popular method (according to statistics) of buying properties are as an REO because the liabilities, condition of the home, and title to land is much more certain than with a foreclosure.
REO appears to be the best way to go.
Here are some additional reasons:
An REO can sometimes be bought up to 20% below market value.
The simplicity of the process handled entirely by skilled Realtors on your behalf.
The right to have a home inspection and seek recourse from lender.
Tax and Lien Free
Possibilities of negotiating financing or incentives with REO bank.
Coming up, part 3, the state of the REO market.