What Does REO Mean
Are you wondering, what does REO mean? If so, you're not alone. REO is a buzz word within the real estate industry and stands for Real Estate Owned. REO properties are foreclosure properties that did not sell at auction and have been returned to the lender who originated the mortgage loan.
Many people ask, "What does REO mean in terms of profit margins?" This can somewhat difficult to answer. In the past, bank owned homes were sold below market value so banks could liquidate toxic assets; meaning properties which cost the bank money to hold. Today, banks are holding on to repossessed properties in hopes of obtaining a higher price when market conditions change.
In 2009, mortgage financier, Freddie Mac, stated the average cost of foreclosure ranges between $65,000 and $80,000 per property. This cost includes losses incurred by mortgage default, legal fees to file court documents and the act of taking possession of the property.
Bank owned properties are managed through each lender's loss mitigation department. In order to purchase properties, buyers must submit an offer through the designated reo agent. Most banks rely on local realtors to list real estate owned homes, but some manage REO transactions in-house.
Most people believe bank owned properties are priced the same as foreclosure homes. This is rarely the case. Many foreclosure properties have creditor or tax liens attached. When banks repo homes they must remove the liens in order to sell the property. Additionally, a large percentage of distressed properties require repairs to return the home to marketable condition.
Banks invest money into real estate owned properties for sale and must charge a higher price to recoup their investment. When buyers purchase foreclosure property through auctions, they are responsible for clearing liens, making necessary repairs and in some cases, evicting the foreclosed homeowner.
With bank owned real estate, those time-consuming and costly tasks have been resolved. Although REO properties have a higher price tag, in the grand scheme of things they are actually cheaper than foreclosure real estate.
Buyers unfamiliar with the process of purchasing bank owned real estate should consider working with an REO specialist who can guide them through the process. Many lenders publish reo listings on company websites and include contact information for the listing realtor.
When purchasing bank owned properties, buyers should be prepared to engage in multiple counter-offers unless they intend to offer the full asking price. If the REO property requires substantial repairs or renovation, buyers should take photographs of the damage and submit with their counter-offer.
In some cases, the bank will elect to make repairs. Other times, banks will adjust the sale price to offset repair costs. Thorough documentation and a professional presentation can help buyers obtain better pricing.
At Simon Volkov, we offer a variety of foreclosure and REO properties for sale. Investors and individuals are invited to subscribe to our real estate investment list by entering their email address in the subscription box on the left sidebar. New investment opportunities are submitted in real-time via RSS feed.
If you are looking for real estate information, we invite you to browse our investing article library. Here you will find information on buying and selling bank owned and foreclosure properties, finance options, tips for locating distressed real estate, offering investment properties as rent-to-own, providing seller carry back financing and much more.