Seller's motivation and competitionREO properties are usually sold at a price that is below their worth, as the bank or financial institution is anxious to sell them as soon as possible to recoup losses from the foreclosure. However, the opportunity to pick up a bargain, and the fact that REOs are the safest type of distressed properties to buy, often result in significant interest among potential buyers, which in turn can drive the price upward.
"As is"Many REO properties are sold "as is," meaning that it is your responsibility to check for problems before you proceed with the purchase. This is a particular concern given that REOs are notorious for being left in a bad state by the previous owner. At best, the owner neglected the property, such as failing to fix things that stopped working, as he didn't have funds to pay for repairs. At worst, the previous owner willfully damaged the place as a result of frustration at his financial state or as a way of "getting back" at the lender, whom he blamed for his problems.A home inspection for an REO property becomes obligatory if you are hoping to avoid buying a place that is in a state of disrepair. If the problems you discover will be costly to fix, you should factor this into the purchase offer that you submit for the property.
Agents and pricingIn order to determine whether the price of the home is below its market value, it's advisable to undertake a property appraisal. In addition, it is worthwhile to do some research about the seller's RealtorU+00AE when the home is an REO. This is because RealtorsU+00AE that sell REOs often apply the same approach to pricing to all of the homes that they sell. Your research could include your buyer's agent accessing the MLS (Multiple Listing Service), which details the properties sold by each agent. Other properties sold by the agent responsible for selling the home you are interested in should be listed, with the list and sales price shown. By comparing these prices, you may be able to derive a percentage showing the general markup for homes sold by this RealtorU+00AE, and you can then apply this percentage to the place you are looking to buy.
Cross-qualificationAnother aspect of buying an REO is that the seller might require you to obtain prequalification from its mortgage department in order to make a purchase offer, regardless of whether or not you have been prequalified through a different lender. Known as "cross-qualification," the seller's motivation for this is to: Entice new customers for its mortgage products, and Facilitate its ability to choose among those making purchase offers until it finds one that it believes is most likely to be able to afford the mortgage payments. Cross-qualification can be problematic for you as a buyer if you hope to submit offers on several REO homes where you will need to obtain prequalification from the sellers of all the properties. You will disclose your private financial information to several different sellers, and the number of inquiries could negatively impact your credit score. In addition, the seller will find out about your personal finances and can use this to ask you to increase your purchase offer if he thinks you can afford to pay more.
Government-owned REOsMany REO homes on the market are owned by government agencies, especially Fannie Mae. Fannie Mae offers the HomePath Mortgage (http://www.homepath.com), which provides several benefits, particularly a low down payment, flexible mortgage terms and no requirement for mortgage insurance.
Your new homeThe above is a brief synopsis of what is unique to REOs and the process of buying them. Once you have familiarized yourself with these features, your search for your new REO home can begin.