Nowadays, the cost of purchasing a house or any real estate properties has skyrocketed so that people are now looking at other alternatives to acquire a property. A lot of buyers would search for properties at auctions and sales while others opt to buy bank owned properties in hope of saving money by getting a great bargain.
REO properties or real estate owned properties have been foreclosed by the bank or the lender after the previous owner failed to make payments on their mortgage loan. These types of properties have undergone the necessary foreclosure process and are usually auctioned unsuccessfully, making the bank or the lender the default owner of these properties. The bank would consider these properties as liabilities that would need maintenance. If the property would sit long on the market, it would usually be found in a rough shape and in need of repairs. For this very reason, REO properties would sell for less than its average market value.
Where to Find REO Properties
Take note that even if the bank has many REO properties in their inventory, they will not advertise it for a very low price. If you are interested in purchasing REO properties, the best way to do so is to find a reliable real estate agent who will do the searching of REO properties for you from various banks or lenders and guide you on the right price. If you want to do the searching yourself, you could contact the lenders directly and ask for their list of REOs.
Making an Offer
Banks foreclose the property to recover what was owed to them by the borrower and although they would be eager to get REOs off their hands, be prepared to negotiate hard. There are other investors such as yourself also interested in making a great bargain, too.
Lenders would prefer cash offers for REOs especially when there are multiple offers for the property. Another reason lenders would prefer cash is because most of these properties need so much work that these properties cannot qualify for traditional financing. Even though some banks may aprefer cash some would be willing to consider financing if the price is right. To increase the chance of landing your desired property, be prepared to make an offer closest to the lender’s asking price.
Savvy homebuyers will usually make an offer on an REO properties 20% below its asking price. Other buyers would rather get a great deal and offer more than what is expected than missing out of a great deal.
The bottom line is buying REO properties can be very stressful. However, having your real estate agent to advise you will help you navigate through paperwork and legalities to shorten your negotiation process and make REOs a valuable investment for your portfolio.