What Does REO Mean When Buying Houses?

The acronym of REO is prevalent in real estate, but what does REO mean and how can you benefit from it? REO stands for real estate owned and refers to foreclosure properties that have been returned to the bank. Once the bank regains ownership of properties they offer real estate at discounted prices through their loss mitigation department or assigned realtors.

Many people want to know what does REO mean in terms of saving money. On average, bank owned homes are listed around 10-percent below market value. Much depends on property condition and the type of repairs required to return the house to livable condition. Other factors include the costs involved in repossessing the home and repair or maintenance expenses incurred by the lender

According to mortgage financier, Freddie Mac, foreclosure costs range between $60,000 and $80,000 per property. This estimate includes loss of income of the home loan and legal fees associated with repossession of the real estate.

A common misconception is that bank owned homes are priced the same as foreclosure real estate. The reality is REO real estate is generally priced higher because the bank has invested time and money into the property.

A large percentage of foreclosure houses sold through auction have creditor or tax liens attached. When buyers purchase houses through foreclosure auctions they are responsible for lien and judgment removal. When banks repossess houses they remove liens and judgments in order to sell the property with a clean title.

Banks need to recoup their investment and therefore must charge higher prices when selling REO homes. Not only do buyers have the opportunity to purchase real estate with a clean title, they also avoid the potential for having to evict foreclosed homeowners. Although REO houses are priced higher than foreclosure houses, buyers don’t have to deal with all the time-consuming and sometimes expensive procedures and legal issues.

The sale of REO properties is handled through each bank’s loss mitigation division. Some banks handle property sales in-house while others rely on local realtors to list, show and submit offers to the lender.

Individuals who are not familiar with the process of buying real estate owned houses would benefit from working with an REO specialist or real estate investor that specializes in this niche. REO investors can help buyers learn what to look for in distressed properties and how to negotiate a better price.

Most banks publish bank owned homes for sale on their corporate website and include contact information for the loss mitigator or realtor handling the sale. Additionally, most real estate companies offer foreclosure and bank owned real estate lists on their websites; making it easy for buyers to locate an abundance of REO homes for sale.

When purchasing bank owned homes, buyers should be prepared to submit multiple counter-offers unless willing to pay full price. Buyers are allowed to obtain property appraisals and home inspections. If REO homes require substantial repairs or renovation, buyers should take photographs and submit with purchase offers.

Depending on the situation, some banks will make repairs in order to obtain full price. In most cases, banks reduce the asking price to offset repair costs. In order to obtain the best price, buyers must present thorough documentation of required repairs including photographs and repair estimates.