What is an REO?
With today’s changing Santa Monica
real estate market, we are beginning
to see not only foreclosures but
numerous properties dubbed REO’s as
well. Many times here at
RealEstate-SantaMonica.com we are
asked “What are they?” So we
thought we’d give a helpful
explanation.
The term REO first of all means
“Real Estate Owned.” These homes
are very similar to foreclosures…and
technically the homes have already
been foreclosed upon, but they
didn’t sell at a foreclosure
auction. Because the homes didn’t
sell at auction, the lender (the
bank) became the owner of the
property.
As you can well imagine, most banks
aren’t interested in hanging on to a
large portfolio of these homes
because they are not in the real
estate business. Banks just want to
make the loans and take their
mortgage checks. That’s why REO’s
are potentially good deals for home
buyers.
Why buy an REO?
For home buyers thinking about
purchasing either a foreclosure or
an REO, it’s good to remember that
these transactions are a little more
complicated than your regular home
purchase.
One advantage to buying an REO
instead of a foreclosure is that the
buyer doesn’t have the pressure of
dealing with a home auction. These
tend to be frenzied affairs and
sometimes peoples’ emotions get the
better of them, and before you know
it, you’ve paid more for a home than
you wanted. With an REO, you write
an offer just as you would a regular
home.
Another plus to buying an REO is
that the buyer gets to do a physical
inspection. This is key. Unless
you are a real estate zen master,
you do not want to be out there
buying homes unless you inspect
them. With an REO you know up front
whether something is wrong with the
property and you can make an
informed purchasing decision.
What should I be wary of when buying
an REO?
REO’s can be great deals for home
buyers, but some deals really are
too good to be true. So just be
mindful of a few things when
venturing into one of these
purchases.
First make sure that the property is
in acceptable shape. Get a physical
inspection! We mentioned this
above, but it bears mentioning
again. You do not want to be
getting a home that appears to be an
amazing deal only to find out later
that it needs $75,000 in foundation
repairs.
Also be mindful of the title. Make
sure the bank gives you a title
report so that you know that the
bank truly owns the home. You don’t
want any gray area here.
Another heads up…make sure there are
no liens on the property. The bank
should be able to field title and
lien questions, but it is your
responsibility to ask.
Why are REO’s priced to low?
As crazy as it sounds, banks price
REO’s to sell quickly because banks
are not in the real estate
business. It could be argued that
banks at this point should have some
brokers working for them full time,
but that’s another discussion
entirely.
Banks really want to cut their
losses and get these homes off of
their books as quickly as possible.
The federal government usually
penalizes financial institutions for
every REO they acquire, so it
behooves them to sell these homes
fast. Now banks certainly won’t
give the homes away but there are
definitely some great deals to be
had.
Should I buy an REO?
Yes and No. If you are the type of
savvy buyer who does his/her
homework, REO’s can be an amazing
way to go if you want to save
money. However, if you are the type
of homeowner who just wants to buy a
house as easily as possible, perhaps
a more traditional home buying
transaction is for you.
So in closing, there are many REO’s
out there. If you are interested,
all of us at
RealEstate-SantaMonica.com would be
happy to help you out.