What Is REO in Real Estate? What They Are and How to Buy

REO stands for real estate owned, which is a term used to describe a property that is owned by a lender after an unsuccessful sale at a foreclosure auction.

A property becomes REO when the borrower defaults on their mortgage and the lender repossesses it.

What Is REO in Real Estate?
What Is REO in Real Estate? | Forever Home Inspection

The lender then tries to sell the property to recover its losses.

READ MORE: What Is Compass Real Estate: A Modern Platform for Buying and Selling Homes

Advantages and Disadvantages of Buying REO Properties

REO properties can offer some advantages for buyers who are looking for a bargain or a fixer-upper. Some of the benefits of buying REO properties are:

  • They are usually sold at a discount by banks and other lenders who want to get rid of them quickly and avoid maintenance costs.
  • They are often listed on the multiple listing service (MLS) and online platforms, which makes them easy to find and compare with other properties.
  • They are sold as is, which means the buyer does not have to deal with the previous owner or any liens or encumbrances on the property.
  • They may qualify for special financing programs or incentives from the lender or the government.

However, buying REO properties also comes with some risks and challenges.

Some cost and time of the purchase.

  • They may have hidden defects or damages that are not disclosed by the lender or the listing agent.
  • They may have legal issues or title problems that can delay or complicate the closing process.
  • They may have a negative impact on the neighborhood or the property value due to vandalism, neglect, or stigma.
  • They may face stiff competition from investors or cash buyers who can offer higher prices or faster closings.

How to Buy REO Properties

Buying REO properties is similar to buying any other property, but it also involves some specific steps and considerations. Here are some tips on how to buy REO properties:

1.Get pre-approved by a lender before you start looking for REO properties.

This will help you determine your budget and show the seller that you are a serious and qualified buyer.

2.Find a local real estate agent who has experience with REO properties.

They can help you search for REO properties, negotiate with the lender, and guide you through the transaction.

3.Do your research on the property and the neighborhood.

Check the property history, the comparable sales, the market trends, and the local amenities.

You can also use online tools like Zillow or Quicken Loans to get more information and insights on REO properties.

4.Inspect the property thoroughly and hire a professional inspector to evaluate the condition and the potential repairs.

You should also check for any liens, taxes, or assessments that may be owed on the property.

5.Make a realistic and competitive offer based on the property value and the market conditions.

You should also include a contingency clause that allows you to back out of the deal if the inspection reveals major problems or if the financing falls through.

6.Be ready to close fast and have your financing and paperwork in order.

REO properties usually have a shorter closing period than regular properties, and the lender may have strict deadlines and requirements.

You should also be prepared to pay for the closing costs and fees, which may be higher than usual for REO properties.

Conclusion

REO properties are properties that are owned by a lender after a foreclosure.

They can offer some opportunities for buyers who are looking for a bargain or a project, but they also come with some risks and challenges.

Buyers who are interested in REO properties should do their homework, work with a professional agent, and act fast and decisively.

Leave a Comment