REO Property Vs Foreclosed Property
Many people will tell you that the market is ripe with investment opportunities.
On one hand, many will point to foreclosures as the proverbial cash cow.
On the other, Real Estate-Owned (REO) property is the preference.
While both are good investments, it is better to look at the facts and prepare yourself first.
REO and Foreclosure Explained After a foreclosure auction fails, the bank or lender takes possession of the property, which then becomes deemed an REO.
More often than not, there is not enough equity on the property.
If it did, the owner would have been able to pay off the bank, which is what causes foreclosures in the first place.
In foreclosures, sales begin with a least bid that covers attorney's fees, loan balance, accrued interest and other additional costs.
A cashier's check is needed to bid at this auction.
If you end up having the highest bid, you get the property in an "as is" condition that includes liens, as well as occupants.
In most cases, the property's value is far less than the money owed to the bank.
This results in a relatively high rate of failure for auction sales.
When this happens, the property reverts to the lender and becomes real estate owned property.
A Closer Look at REO Property With the bank now owning the property, the mortgage is no more.
The bank also handles any eviction and repairs.
In addition, any outstanding association dues are paid off and tax liens are negotiated with the IRS to be removed.
This means that successful buyers receive a title insurance policy and the opportunity to inspect the property.
Like some foreclosures, bank owned homes may not be the bargain they are said to be.
It is best to do some research first before making an offer.
The price you pay should be comparable to that of the rest of the neighborhood.
Keep the costs of renovation in mind and factor this into your decision.
Any bidding war should be avoided so you do not pay above the property's market value.
What to Expect Banks are in a hurry to sell REO properties so they typically sell them in an "as is" condition.
They may provide a Section 1 Pest Certification, but only if you include it in your offer.
Inspections may be allowed, but you will have to pay for them.
As such, it is better for your offer to include a contingency period to let you terminate the sale if it reveals major damages.
Even then, banks may still agree to give credit or make repairs after inspections.
They would rather renegotiate and have the transaction push through than put the property back in the market.
Be aware the most banks do not allow financing for their REOs especially if it has extensive damage.
Making an Offer Your agent should ask important questions before you make an offer.
Inspection reports, forms and other requirements should be clear beforehand.
Make your offer easy to approve by providing a buyer biography and preapproval letter.
Keep in mind that there are no face-to-face meetings so making a good first impression is a must.
On one hand, many will point to foreclosures as the proverbial cash cow.
On the other, Real Estate-Owned (REO) property is the preference.
While both are good investments, it is better to look at the facts and prepare yourself first.
REO and Foreclosure Explained After a foreclosure auction fails, the bank or lender takes possession of the property, which then becomes deemed an REO.
More often than not, there is not enough equity on the property.
If it did, the owner would have been able to pay off the bank, which is what causes foreclosures in the first place.
In foreclosures, sales begin with a least bid that covers attorney's fees, loan balance, accrued interest and other additional costs.
A cashier's check is needed to bid at this auction.
If you end up having the highest bid, you get the property in an "as is" condition that includes liens, as well as occupants.
In most cases, the property's value is far less than the money owed to the bank.
This results in a relatively high rate of failure for auction sales.
When this happens, the property reverts to the lender and becomes real estate owned property.
A Closer Look at REO Property With the bank now owning the property, the mortgage is no more.
The bank also handles any eviction and repairs.
In addition, any outstanding association dues are paid off and tax liens are negotiated with the IRS to be removed.
This means that successful buyers receive a title insurance policy and the opportunity to inspect the property.
Like some foreclosures, bank owned homes may not be the bargain they are said to be.
It is best to do some research first before making an offer.
The price you pay should be comparable to that of the rest of the neighborhood.
Keep the costs of renovation in mind and factor this into your decision.
Any bidding war should be avoided so you do not pay above the property's market value.
What to Expect Banks are in a hurry to sell REO properties so they typically sell them in an "as is" condition.
They may provide a Section 1 Pest Certification, but only if you include it in your offer.
Inspections may be allowed, but you will have to pay for them.
As such, it is better for your offer to include a contingency period to let you terminate the sale if it reveals major damages.
Even then, banks may still agree to give credit or make repairs after inspections.
They would rather renegotiate and have the transaction push through than put the property back in the market.
Be aware the most banks do not allow financing for their REOs especially if it has extensive damage.
Making an Offer Your agent should ask important questions before you make an offer.
Inspection reports, forms and other requirements should be clear beforehand.
Make your offer easy to approve by providing a buyer biography and preapproval letter.
Keep in mind that there are no face-to-face meetings so making a good first impression is a must.
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