 Buyer's Guide to Buying a Bank-Owned or Foreclosure PropertySunday, November 23, 2008 - Article by: Aaron Gordon -
In today's market, nearly four out of every five homes sold are bank-owned foreclosure properties. These are commonly referred to as Real Estate Owned (REO) properties Buying an REO property is very different than a traditional buyer/seller transaction. The process is much more taxing and several more entities are involved in the REO transaction. This can create more time and challenges. Many REO homebuyers, especially those buying a home for the first time or their first bank-owned property, get frustrated during the process. Since the REO phenomenon started dominating sales, not coincidently, customer service scores in title, escrow, lending and real estate have plummeted. Together with my team, I have developed this short, simplified guide to better help our clients understand the REO transaction process. We hope you will share this with your teams and buyers. While this guide will not change the way the transaction occurs, it may help set more reasonable expectations upfront and eliminate some surprises. Buying an REO is a great way to save money and get a fantastic deal. Just be prepared for the uniqueness of the process. What is an REO or bank-owned property? A property acquired in foreclosure and now owned by the bank that foreclosed on the property is called an REO or bank-owned property. How did this property become an REO? The last owner of this home was not able the mortgage payments. The mortgage note holder seized the property and evicted the owner. The bank attempted to auction the property and pay off the existing liens and mortgages. If that was not successful, the bank was then deeded the property by the Trustee. It is now an REO property. How do banks sell REO properties? The banks are not in the real estate holding business so they must sell these homes and turn them into cash. Because most foreclosed properties are not successful at auction, REO properties have flooded the market. In any market, if there is oversupply, the property values depreciate. Because of the depreciated market, the banks are going to take, in most cases, a substantial loss on the property. The banks have independent, professional real estate agents that assist them is marketing and selling their REO inventory. The banks also assign asset managers who work closely with these agents. How do banks price their REO properties? When a bank takes over a property, they conduct their own due diligence to get an accurate idea of the value of the home. |
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