What is an REO? REO stands for Real Estate Ownership. Everyone is talking about REO these days. But before you consider buying one, there are a few things to know about REOs. These properties are generally owned by banks, credit unions, mortgage companies, and sometimes private companies. It has become increasingly common for the news to report on foreclosure issues and homeowners losing their homes and other effects of the foreclosure crisis. As a result, there have been dramatic increases in REO marketing to the general public. It used to be that you could barely get your hands on lenders’ foreclosure lists. But these days, everyone is trying to sell REOs.

The people being marketed to by these REO sellers are primarily potential first-time homebuyers and minorities. Fannie Mae works with many companies to help these types of homebuyers realize the American Dream of homeownership through reasonable and affordable loans. There has been a shift in the industry from REO marketing to those “trading” houses to first time home buyers. The dramatic increase in foreclosures has left many lenders with high REO inventories, resulting in potentially advantageous opportunities for people who have never had access before, to gain access to the real estate market. Additionally, the number of foreclosures is allowing simple real estate investors to diversify and expand their portfolios.

There are many laws regarding foreclosures and the process. Mainly, when the property is in the pre-foreclosure and auction stage, the bank (owner) only has a legal right to their losses and expenses. This means that the bank (owner) has no right to profit from the sale. However, this changes, after the property has been repossessed, you become an REO.

REOs are often considered great starter homes because the sales prices for these properties are generally lower than for a similar non-REO property. However, in today’s market, this may not always be the case. This is mainly due to the fact of the number of such properties on the market. Even though a property is an REO, it does not mean that the owner will not make a profit on the sale. Remember, after the foreclosure process, the REO owner can now make a profit, which can affect the sale price. Generally, a buyer is more likely to get a lower price when buying a home in the pre-foreclosure stage or at auction.

Let’s say you have now decided that you want an REO. You should be aware that there are risks associated with this “great offer” you are receiving. When considering an REO purchase, make sure you have access to and contact information for several experts who will guide you through the inspection process.

You will need a real estate agent, who can protect your interests and make sure you get the best possible deal. Your real estate agent will be able to generate reports for you showing comparable sales prices that will allow you to assess whether the asking price for the REO you are considering is appropriate. There are some statistics that show that the average price of an REO is between 15 and 30 percent lower than comparable sales prices. However, there are REASONS for this.

REOs are being sold AS IS. This means that what you see is what you get. You will need a qualified home inspector to guide you through this step of your REO buying process. Only a qualified inspector will be able to reveal latent flaws or issues that you should consider before purchasing the REO. You’ll need to factor the costs of potentially repairing, replacing, or rehabbing necessary sections of the property into the price you’ll pay.

REOs take longer. When you buy an REO, you are not dealing with a Joe and Jane Smith homeowner, you are dealing with a bank or investment company. The decision-making and approval process for the sale in a company takes much longer than in individuals. It could take weeks to get your offer approved. Also, while most banks will remove tax liens and occupants (if necessary) from the property, to protect yourself, you should perform a title search. Now you may not be able to do this yourself, so you’ll hire a company to do such a search for you, and it can take up to a week for the results to be reviewed. Another potentially time consuming process is getting an appraisal. As a buyer, you shouldn’t blindly trust the seller’s appraisal, get your own! Any time or money you spend upfront may well be worth it in the long run. You want to know that you are getting what you are paying for!