Reo Properties For Sale Are Not Always Good Deals

Ahh, so you saw the ad that flashed, "REO Properties For Sale" and you're thinking

you are going to do just like the guy in the infomercial said and go buy up a few, clean them up a little bit, and then resell them and make a killing. And why not? REO properties can be had for a song, right? Who in their right mind could pass up a bargain like that? You'd think that everybody would be out there snapping up REO properties. Well, before you begin hitting the "REO Properties For Sale" ads, you better read the rest of this article. The guy in the infomercial doesn't tell you the whole story.

But the guy in the infomercial neglects to tell you that there is a difference between foreclosure properties and REO properties. When a foreclosure property first goes up for auction, it's still owned by the mortgage company and they want to get rid of it as quick as possible. So that much is right. However, if there were enough equity in the property to start with, the owner most likely would have sold the house himself and paid it off. Foreclosure sales begin with a minimum bid that includes the balance of the loan, the accrued interest, attorney fees and other related costs of the foreclosure so that minimum opening bid can oftentimes be more than the property is currently worth. Which is the reason that most homes don't even receive a bid at a foreclosure sale.

The property then reverts back to the bank when it is not sold at the foreclosure sale and that's when it becomes an REO property - Real Estate Owned (by the bank). Now that the bank officially owns the property it becomes one of their assets and banks now have entire departments dedicated to handling these properties. Because they're now an asset, banks are not in such a rush to unload them at a cheap price just to get rid of the responsibility.

The bank now goes in and makes minor repairs, takes care of any accrued association fees, negotiates tax liens with the IRS and in essence now becomes the owner of an asset, just like when you purchase a home. So it's to the bank's benefit now to sell that home at an even higher price than was asked at the foreclosure sale so they will recoup their investment and make a profit.

Where most buyers make their fatal mistake is in assuming that because the property was a foreclosure property they are getting a better deal no matter what the price is and they do not realize that most times the property is worth far less than the asking price. The guy in the infomercial is pulling your leg and making a lot of cash telling you why you ought to purchase REO properties but you need to spend a little time learning HOW you ought to purchase them. There are some extremely sensible deals out there. But before you begin hitting those "REO Properties For Sale" ads, you need to do a little research.

by: Vladymir Rys

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