Risks of Buying REO Property
A REO (real estate owned) property is a home, commercial property or tract of land that was repossessed by the lender after the owner was unable to make the mortgage payments. A foreclosure can offer a chance to buy a property for less than market value, but there are numerous risks involved.
Other People Are Reading
-
Misconceptions
-
There is an idea that REO properties offer a quick and easy way for real estate investors or first-time buyers to get high-quality properties at a deep discount, and that with just a little work, these properties can be renovated and sold for a higher price. Another misconception is that banks want to sell these properties as quickly as possible, even if it means losing money on the sale.
These misconceptions are the first risk involved in buying REO properties. Being unaware of the process or not understanding the other challenges you might face can cause significant problems, such as buying a property for more than its market value or buying a property that requires more work than you can afford.
Condition of the Property
-
Most REO-owned properties are sold "as is." Depending on the state of the property at foreclosure, this could mean a lot of work will be needed to make it usable. Full property inspections are strongly recommended before any purchase, but most banks will not make any necessary repairs or lower the price to make up for the cost of repairs. You will be expected to do any such work at your own expense.
-
Time Frame
-
Most REO sales take a month or longer to close. When you buy a home, business or piece of land from a traditional seller, you and the seller determine the price and details of the sale. In the majority of REO sales, several bank employees must approve the details of the sale before it can move forward. If it is denied at any point, you must start all over again.
Price
-
Once a home has been foreclosed and failed to sell at auction, the bank becomes just another seller, interested in getting the most money from the sale of a property as possible. At the very least, the bank wants to recover the amount owed on the previous mortgage, any lost interest and the fees associated with a foreclosure proceeding. This means a foreclosed property can cost very close to, if not more than, the market value of the property. Factoring in any costs for repairs or renovations, you might pay considerably more than fair market value.
Tips
-
REO properties can be a smart buy, if they're done correctly. Contact a real estate agent experienced in assisting buyers in the purchase of foreclosed properties. He can help you find REO properties in the area, assist in filling out paperwork and negotiating with the bank and guide you through the process.
Learn as much as you can about buying foreclosed and bank-owned properties before diving in. A couple of hours of research can save you a lot of frustration and a considerable amount of money.
-
