subject: Is Buying REO Property Worth the Headache? [print this page] Is Buying REO Property Worth the Headache?
REO property is moving to the forefront of investment property purchases. REO stands for real estate owned and refers to properties repossessed by lenders due to mortgage default. Holding foreclosure real estate costs banks money. Most want to liquidate toxic assets as quickly as possible and often price properties below market value.
REO homes can be a good choice for first time home buyers, real estate investors, or buyers seeking out a second home. However, it is important to conduct adequate due diligence to determine property condition and obtain repair cost estimates.
A large percentage of real estate owned by banks requires some level of repair. The unfortunate truth about foreclosure homes is evicted homeowners often engage in violence against the home as a way to vent frustration toward the lender. Although it is illegal to cause property damage or remove attachments such as windows, flooring, toilets, or tubs, this does not stop people from doing it.
The problem is less prevalent amongst bank owned homes than properties sold at foreclosure auction. Once banks regain ownership they often make required repairs to return the property to salable condition. Banks also remove any attachments, such as creditor judgments and tax liens that could interfere with title transfer.
REO homes are either listed for sale through the bank's loss mitigation department or local realtors. It is important to realize that banks incur financial loss through the foreclosure process, along with costs of required repairs. Therefore, they rarely accept offers for less than the purchase price.
Depending on the location of property, banks may not accept offers unless they exceed the asking price. California is currently facing a shrinking housing inventory that has resulted in numerous REO purchase offers being rejected. Some investors have reported making offers as high as 25-percent higher than the asking price and still unable to purchase the property.
It can be helpful to work with a realtor who specializes in REO homes. These professionals understand the market and are familiar with bank practices. They can help locate newly listed properties and houses that have been listed for prolonged periods.
It is sometimes beneficial to scout out 'stagnant' properties listed for 6 months or longer. Once banks release inventory for sale the primary goal is to liquidate as quickly as possible. Once real estate listings become stagnant banks are more willing to enter into price negotiation.
It's important to realize that banks are not very good at real estate transactions. The process for buying REO properties is not the same as if buying through a private seller. Banks are notorious for taking weeks to accept or reject an offer. They rarely engage in counter-offers and often reject offers higher than the asking price. But, if you have the patience to wait it out, you have the opportunity to get a great deal.
One option for buying bank owned property is Fannie Mae Homepath program. This program is available to individuals and real estate investors. The process is not as daunting as buying real estate directly from banks.
Fannie Mae Homepath properties are located across the nation. Prices start as low as $5000, with the median price hovering around $149,950 for a 3 bedroom/2 bath ranch-style home. Fannie Mae homes can be financed using the lender of your choice or via Home Path Mortgage. Program details are available at HomePath.com.
Only you can decide if REO property is right for you. If you are not in a hurry to buy a house this might be the perfect venue. Otherwise, you might want to seek out 'For Sale by Owner' properties and those listed by private sellers via realtors.
