Buying an REO Property for Beginners

Buying an REO is an adventure, to say the least. You will need to be patient, and you will see a lot of very undesirable property. It’s a longer process than just shopping for a home, but you can save a great deal if you buy property this way.

What REO Means

REO means that the bank has take possession of a house, and the home owner in most cases no longer lives in the premises. When this happens the property becomes known as a “Real Estate Owned” property, which basically means it’s bank owned. In most cases, the agents that handle these sales are asset managers from banks. Some agents work closely with banks, and typically specialize in handling these types of transactions.

Advantages

The bank doesn’t want to hold onto REOs for very long. They are costly to maintain, because they need the utilities to be kept on and for the house to be groomed and repaired, and banks are in the business of loaning money not holding real estate. At auction, the buyer is likely to pay in cash fully for the home, which ends up being a great deal if you can afford it. REOs, on the other hand, don’t require this level of investment and are better for first time home buyers. Of course, you need to evaluate each transaction to be sure you’re actually getting a good deal.

Potential Risks

There is every possibility that the property you’re buying into is damaged in some form or another. Think about the state of the homeowners. These people lose homes because they lapse on their mortgages. Chances are they didn’t take that extra money and put it back into the home. Get a home inspection, and make sure you detail everything wrong with the home so you can weigh out those costs. Avoid serious problems like burst pipes or cracked foundations. Avoid anything that will require extensive remodeling, but updating is usually ok.

Final Thoughts

Make sure that you allow at least ten days for a home inspection after your offer is accepted. You should also speak with a lender now if you plan to buy an REO, a prequalification letter will work to your advantage as you move forward in the process. The bank will almost always counter and ask you to give your best bid, so be prepared to bid according to the value of the home and try not to let emotion force you into going higher.

Kuba Jewgieniew and Realty ONE Group offer agents more commission through a business model that centers around their needs. Kuba Jewgieniew also promotes technology and resources to help put agents and buyers in touch. Kuba Jewgieniew is the CEO of Realty ONE Group, which is one of the fastest growing brands in real estate.