A recent survey was just put out by NAR (National Association of Realtors) that said 20% of the most recent sales were REO (Real Estate Owned) or bank owned property. That's an astounding percentage! Since these types of properties are becoming more and more common, I want to go over the pros and cons for those interested.
REO's essentially are post foreclosed homes, and lenders are not in the market to hold or own these types of properties, so they out source them to a select group of real estat agents or in some cases auctions to get them sold. Some of the drawbacks of purchasing REOs are that they are usually in need of repairs. When owners are faced with losing their homes, they really don't focus on maintaining the property the way they should, and in some cases, take out their frustrations of losing their home on the house itself. So be expected to do some repairs, at the very least, cosmetic repairs. In most cases, the lenders cannot sell the homes for what is owed, because of condition and the marketplace, so they are taking a loss to list them at or below current market value. The drawback is that it is more difficult to negotiate a steal or a real good bargain, and in some cases, lenders will only pay so much of your closing cost and will almost never do any repairs. Another item of concern can be the properties deed or title. When you get into a contract on a particular property, it may have previous judgements or liens on it from the prior owners, which can take time to correct, or in some cases, may break the deal altogether. Some lenders will do a preliminary title search upon putting it up for sale, but that's not always the case. Lastly, going back to negotiations, it will take a longer period of time to negotiate terms, as usually it's not just one person's decision from the seller's stand point.
With all the negatives out of the way, let's focus on some of the positives. The biggest and most oblivious benefit for buyers to entertain purchasing an REO property would be the price. They are typically listed at a very bargain price, mainly to entice buyers to purchase so that the banks or corporations don't have to hold them for long term. As previously mentioned, they may need some repair, but if your handy or don't mind painting, then it is usually worth the sweat equity. Another plus for purchasing a home in need of repair is that it usually helps the community your planning to live in. Nobody wants to live near a vacant distressed home that has the potential to attract break-ins. So in essence, your helping to improve your neighborhood. In some cases of mid to major repairs needed, you can secure an FHA 203k loan program. With this loan, it allows you to finance the renovations into the home loan, so if you don't mind finding good quality contractors, and facilitating the rehab process, you can have a custom renovated home that mirrors exactly what your wanting in a home, and if you get a great enough deal, still have plenty of equity in the property when it's all said and done. Bottom line, if you find the right property at the right price, and don't mind doing some extra steps, you may secure a really good deal and get a great home. You have to look past the cosmetics needed, and if you do, you can get a bargain home.
If your interested in knowing more about REOs or foreclosed homes, please contact me or visit my website at www.joshsellsvirginia.com.