Buying REO Properties through Banks and Real Estate Investors
Posted: Sep 17, 2010
 
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REO properties refer to real estate which is owned by the bank. REO stands for ‘
real estate owned’ and includes residential and commercial realty that has
fallen into foreclosure. The majority of bank owned foreclosures are listed for
sale at discounted prices.
REO properties are often purchased for investment purposes, but can also make
for a great residential home or business property. Since bank foreclosures are
often priced 10- to 20-percent below market value, buyers may find it easier to
obtain financing. However, many foreclosure properties require repairs so
buyers must conduct due diligence to determine the true cost.
Real estate owned properties are sold through the bank’s loss mitigation
department. Many lenders hire real estate agents to list and show properties,
but purchase offers are submitted to the servicing lender. Some banks list
foreclosure real estate on their company websites, while others list properties
through designated realtors.
All types of properties can become bank owned including residential homes,
commercial real estate, industrial parks, apartment and condominium buildings,
shopping malls, retail outlets, and vacant land. Even golf courses and bowling
alleys have ended up on foreclosure lists.
Buying REO properties can sometimes be a lengthy process, particularly when
attempting to negotiate the asking price. Banks typically are unwilling to
accept a lower price unless buyers obtain home inspections which reveal
extensive damage.
It is best to submit purchase offers for the full asking price when buying bank
foreclosures; particularly if it is a property the buyer really wants. It is
not uncommon for several buyers to submit offers on the same property. While
everyone wants a great deal, it may not be in the best interest to try to
obtain a lower price.
Bank foreclosures are sold in as-is condition and are not covered under
warranty. Banks sometimes engage in repairs or renovations to improve property
conditions and make the home more attractive to buyers.
Any work that is done while the property is owned by the bank is not guaranteed.
Therefore, it is imperative for buyers to conduct due diligence and follow the
same protocol they would if buying any other type of real estate.
One way to buy REO properties at discounted prices is to seek out private real
estate investors who engage in wholesaling. Real estate wholesalers purchase
bank portfolios consisting of multiple foreclosure properties. This often
results in savings of 30- to 40-percent and allows investors to pass savings
along to buyers while still earning a profit.
Buying houses from wholesalers eliminates the need to negotiate prices with
bank loss mitigators. Buyers can often save 20-percent or more and obtain
instant home equity. Even if buyers end up spending 10-percent on home
improvements or property repairs, they are still getting a great deal.
Private investors who possess experience in buying and selling REO properties
can be beneficial in helping buyers locate the type of property they desire.
Many investors network with nationwide investment groups and can reach out to
hundreds of partners with the press of their computer mouse.
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