Real Estate Owned (REO) is residential property that a lender becomes an owner of after they complete a foreclosure. Read on to learn the facts you must know about buying an REO.
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Real Estate Owned (REO) is residential property that a lender becomes an owner of after they complete a foreclosure and take possession of the property. As a homebuyer, you might see properties listed as real estate owned, REO, or bank-owned, which all mean the same thing. Below are the facts you must know about buying an REO.
REOs don't necessarily sell for less than other homes. Banks hire local real estate agents to sell their REOs, which means they're marketed like any other listing. Banks will negotiate like any other seller, but their local listing agents will manage the negotiations, and their price methodology will be based on comparable sales in the neighborhood. If the home isn't in good condition relative to recently sold similar homes nearby, that will help you negotiate as a buyer.
Unlike a traditional listing where you can often negotiate with the seller to make repairs before you close, REOs are sold 'as is,' You should budget to have the property inspected to determine exactly what you're getting into. You should also make sure you have the budget to fix up any deferred maintenance from long post-foreclosure vacancies, or damages that occurred during the previous owner's foreclosure and move out process.
Getting pre-approved by a lender is important in any home purchase so you can determine what you can afford. But it's especially important in an REO purchase because you need to be able to close quickly to compete with investors who are often seeking REOs, and because selling banks require a pre-approval letter to even submit an offer on an REO. It's easy to connect with a local lender to get pre-qualified.
After you get pre-approved, you will also need to connect with a local real estate agent to put together an offer on the REO. The bank will require that the offer is accompanied by your lender's pre-approval letter. It used to take a month or more to get a response on an REO offer, but banks have gotten much quicker. The trend now is more like a week or less to get a response.
Often REOs are sought after by investors who will pay all cash for homes, and have the budget to fix up properties, which makes them very tough to compete against as a buyer. However, many banks have special programs where they'll only accept offers from owner-occupants for the first few weeks of a listing. Ask your real estate agent to investigate this for you.
Once your offer is accepted, the process is mostly the same as any other transaction -- except for the 'as is' part of the contract, which means you won't be able to ask the selling bank to make repairs.
A local agent can help you stay competitive on a budget.
They’ll help you get an edge without stretching your finances.
Talk with a local agent