REO properties refer to real estate which is owned by the bank. Often referenced as real estate owned, bank owned, and bank foreclosures, these properties were once foreclosure homes that did not sell through public auction.
REO properties have become a preferred choice amongst real estate investors. Although real estate owned homes generally have a higher price tag than houses sold through foreclosure auctions, they are sold with a clean title. The bank removes any tax or creditor liens which may have been attached and evicts foreclosed homeowners if they refuse to vacate the premises.
Bank owned foreclosures are sold through each lender's loss mitigation department. Some banks handle all aspects of the sale while others delegate partial responsibility to independent realtors. Many banks offer a list of foreclosure homes for sale via their website, along with the contact information for the loss mitigator or real estate agent.
Prior to submitting purchase offers on REO homes, buyers must obtain preapproved financing unless they are able to buy the property with cash. Offers are submitted to bank loss mitigation either directly or through the assigned realtor.
Unless offers are submitted for the full asking price, loss mitigators rarely accept the first offer. Buyers should be prepared to engage in multiple counter-offers or to walk away if they cannot obtain the real estate with a reasonable offer.
One option for buying REO properties is to seek out private real estate investors who buy bank portfolios. When investors or investment groups buy foreclosure properties in bulk they obtain wholesale pricing and pass part of the savings along to buyers.
Buyers have a better chance of obtaining the property at a lower price than when buying through bank loss mitigation. It is not unusual for private investors to sell bank foreclosures for 20- to 30-percent below market value.
REO houses are sold as-is regardless of whether the bank owns them or has sold a portfolio of foreclosure properties to a real estate investor. Therefore, buyers must engage in due diligence to determine the true cost of the property. If expensive repairs are revealed during the home inspection, buyers should obtain repair cost estimates to further negotiate the asking price.
Previously, buying bank owned properties was a strategy used primarily by real estate investors. Today, banks hold billions of dollars in real estate assets which must be sold. Word has gotten out that bank foreclosures can be purchased below market value and it is becoming common practice to seek out REO homes as a way to save money and obtain instant home equity.
REO properties often make for good investment real estate, but can also be an excellent option for first time home buyers and those with less than perfect credit. Fannie Mae offers numerous bank owned foreclosure properties which can be purchased using special financing options through Fannie Mae's Home Path Mortgage program.
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Those who would like to learn more about buying bank owned homes are encouraged to browse our REO properties article library. We offer information, resources, and buying tips to help make the process of buying real estate easier and more profitable!