5 keys to buying a bank-owned propertyby Tim Manni
Last week we shared advice for those of you considering buying a foreclosure. Yesterday we shared some tips for those looking to buy a short sale property. As part of the “distressed real estate package” we created here at HSH.com, it’s about time we talk about real-estate owned (REO) properties as well.
What exactly is an REO property?
An REO is a property that has reverted to the mortgage lender after an unsuccessful foreclosure auction. REOs are a large part of the housing market these days. In September 2010, distressed properties — many of them REOs — accounted for nearly 48 percent of home-purchase transactions, according to the Campbell Inside Mortgage Finance Survey.
Many banks have an entire department set up to sell REOs. Bank-owned properties can offer great deals for buyers, as they often sell for less than a typical resale home, but there are several things you need to know before investing in an REO property.
Even though REOs can be a bargain, that doesn’t mean you should jump in with your eyes closed. “REO buyers need to do their homework so they understand the property, the market, the neighborhood, and the process,” says Tom Kelly, a spokesperson for Chase Bank.
Here are 5 keys to buying a bank-owned property in today’s market:
How to find REOs
Real estate agents can pull up REO offerings for you. Most mortgage lenders want their REO properties listed on the multiple listing service (MLS) so that any real estate agent can show them to potential buyers. Many banks also have websites specifically dedicated to their REO listings (go to a bank’s website and look for links)…
Get your own appraisal
Discounts on REOs vary greatly, depending on whether the homes are severely damaged and where they’re located in the country. Although damaged REOs might sell for a relatively minor discount — 5 percent to 7 percent off comparable private sales of non-damaged homes — some might offer as much as a 30 percent discount.
But being listed as an REO doesn’t mean that a property will automatically be a bargain. Banks are in business to make money, so of course they’re going to price homes as competitively as possible. This is why it’s important to always ask for an appraisal on the home you plan to purchase, advises Cliff Roe of Cliff Roe Realty, an REO specialist in Seminole, Florida. But keep in mind that an appraisal is going to cost you a few hundred dollars.
It’s possible to turn a fixer-upper into your own personal castle, as long as you are patient and don’t expect that an REO listing means an automatic windfall. Be sure to continue reading “5 keys to buying a bank-owned property.”