A bank-owned or real estate owned (REO) property is one that has reverted to the mortgage lender after the home fails to sell in a foreclosure auction. Once the bank owns the property, it will handle eviction, if necessary, pay off tax liens and may do some repairs. REOs are a significant part of the housing market and can be great deals for buyers, but there are some things you need to know before investing in one.
Where to find bank-owned properties (REOs)
There are several ways to find bank-owned properties:
- MLS - Most lenders list their REO properties on the Multiple Listing Service (MLS), so any real estate agent can help you identify REO offerings in your area.
- Bank websites - Some banks have an entire department set up to sell REOs, and sections of their websites are dedicated to their listings.
- Online specialists - Zillow has foreclosure listings, for free. You can find foreclosure properties by using search filters on Zillow's search and maps page. Most other online foreclosure listing services charge a fee.
Get an appraisal and inspection
Be aware that REO properties are not automatically bargains. Banks are in business to make money, so they price their homes competitively. Some REOs are discounted because of severe damage or location, while others may not sell for much of a discount at all. Get an independent appraisal to determine a home's true market value.
Additionally, understand that REOs, some of which have been vacant for months or even years, generally are sold “as-is” with no warranties of any sort. Hire a professional to inspect the home before committing to purchase.
Real estate agent David Nelson, who works for Virginia Beach, VA-based Wainwright Real Estate, says he recently worked with a client who ignored his suggestion to have a home inspection.
"We could see that some tiles were messed up and the shower valves were gone, but he was confident he could fix that himself,” says Nelson. “What he didn't realize was that someone had reached into the walls and pulled all the copper plumbing out of the house. It cost him $50,000 in repairs - all because he waived his right to an inspection."
Banks generally clear the title before listing a home – but never assume this is the case. Search public records for liens and outstanding taxes, then hire a title company to run a full, insured title search before closing the deal.
Be smart about money
Get pre-qualified for a loan if you're serious about buying. Even better: get pre-approved by the lender that owns the property.
Understand that a significantly damaged home may limit your financing options. VA loans, for example, can be more difficult to obtain if the property isn't in move-in condition.
If the property you're considering is in good condition, the fact that it's an REO shouldn't make it more difficult to qualify for a loan. Similarly, an REO property in decent shape should not be subject to a higher mortgage rate.
Do your homework before making any offers. Make certain your offer price is comparable to the recent sale prices of similar homes in the neighborhood. Be sure you add in the costs of renovation.
Bidding on an REO isn't quite like making an offer on a privately-owned home, where owners generally respond quickly.
It's typical for an REO offer to be reviewed by several individuals and companies, which means it can take weeks to get a response. Banks must demonstrate to shareholders and investors that they worked hard to get the best price for the property, so it's likely your offer will be met with a counter offer. If the lender isn't willing to negotiate on price, ask for a lower interest rate or a reduction in closing costs.
Even after an agreement is reached, the bank may make its acceptance contingent upon corporate approval within five to 10 days.
If your credit is good, you may find your bank is willing to loan the full price of the foreclosure – maybe more if extensive repairs are needed. Some lenders require a 10 percent down payment if the foreclosure is going to be used as a rental. You may also find you need to turn to a private lender to finance your REO property purchase.
Roman Lopez is the owner of The Roman Lopez Real Estate Team, a full service real estate company specializing in Greater Austin home sales, purchases, and investments properties.
Roman has worked and excelled in the real estate business in Austin, TX for the last 7 years. Roman's real estate career started in 2008 where he was named Rookie of the Year for the KB Home Central Texas Division.
After a successful career with KB Home, Roman obtained his real estate licence and joined Keller Williams Realty where he again rose to the top and won Rookie of the Year for Keller Williams Austin.
After a year as a solo agent he built a team of top producing agent, The Roman Lopez Real Estate Team. His team now ranks as one of Keller Williams top teams closing over 200+ residential sales transactions per year.
Roman's designations include: Certified Negotiation Expert, Certified Distressed Property Expert, Certified International Property Expert, Certified International Property Expert, and Global Property Specialist.
Roman's Awards: Keller Williams Austin Rookie of the Year 2011, 2008 KB Home Rookie of the Year Central Texas Division, 2015 Platinum Top 50 Winner, Platinum Top 50 Finalist, 2014 NAHREP Top 250 Latino Agent in the US, 2014 NAHREP Top 20 Latino Agent in Austin, 32015 NAHREP Top 250 Latino Agent in the US, 2015 NAHREP Top 20 Latino Agent in Austin, 2015 Best of Angie's List, 2015 Real Trends Best Real Estate Agents, 2014 Best of Trulia Best Real Estate Agents
If it's your first time buying or selling real estate, you don't know
"Yasmin Hashim and Roman Lopez were really helpful for my condo! I bought the condo half a year ago from Yasmin, and she was really nice and answered all my questions, and the price was really good because of her . Half a year later, she introduced me to her team leader Roman Lopez when I had some questions about the selling condo. Mr. Lopez was very patient, we set up a free consultation. He provided several options and each of them was very decent. I decided to rent my place for a little bit, but I will definitely ask for their help when I sell the property."
The information being provided is for consumers' personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing.
Based on information from the Austin Board of REALTORS®. Neither the Board nor ACTRIS guarantees or is in any way responsible for its accuracy. All data is provided "AS IS" and with all faults. Data maintained by the Board or ACTRIS may not reflect all real estate activity in the market.
IDX data last updated January 21, 2018 5:35 AM
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