REOs are quickly becoming a portion of recent sales in southern California, but do you really know what they are?
What is an REO?
REO is an acronym for Real Estate Owned and is industry terminology for a foreclosed property which has been repossessed by a bank or lender.
When does an REO occur?
REOs or Real Estate Owned Properties are properties owned by a bank or lender. These properties have gone through the foreclosure process, but no one successfully bid on them for purchase, so they convert back to the bank or lender. There are many advantages to buying Bank REOs.
Advantages of Buying Bank REO Properties
- All liens against the property are removed once it becomes an REO, and property taxes are brought current.
- Unlike properties at foreclosure auction, REOs can be inspected prior to contract, and are listed with real estate agents.
- While many foreclosures are often in deplorable condition, REOs are typically restored to at least a readily salable condition by the lending bank.
- The bank or lending institution that owns the property will often offer financing with better deals than they would offer on traditional properties.
- The bank or lender that owns the property will often provide an allowance for certain repairs.
- You can save money in your title search if you use the same title company that the lender used during foreclosure. They will often discount the cost up to as much as 100%!
- REO properties are usually listed on your local MLS (multiple listing service).
- REOs will often times include appliances
- While in hot markets, you may not see a difference in price between an REO and a typical property, during slower markets, you can pick up an REO at discounts to the property’s actual value.
- UTILITIES are usually are shut off. The bank expects the buyers to turn on utilities in buyers name before city and private home inspections and for appraisal.
- INSPECTIONS -The bank wants the buyer to pay for the city inspection and all private inspections and accept all repairs and conditions prior to closing. And the Bank Usually requires a private inspection is done prior to writing an offer, but may make exceptions.
- BANKS DONLT LIKE TO PAY BUYERS CLOSING COSTS, VA or HUD will not pay. If the property is HUD or VA owned they will not provide title insurance or pay transfer taxes.
- DEPOSIT IS USUSALLY REQUIRED to be held by the listing office or title company. Because the buyer’s agent does not hold them it is very difficult to get back in case of a dispute. They usually want $1,000 in certified funds. Based on a Pre-Approval from buyer’s lender, the bank will try to keep the earnest money even if the buyer’s mortgage is denied.
- BANK WANT A QUICK CLOSING USUALLY within 30-45 days or less, THE SHORTER THE ESCROW PERIOD THE MORE THE BANK WILL COMPRIMISE. If buyer cannot close by that date, even if no fault of their own, the bank will charge a per diem fee.
- Banks will only give you a Special Warranty Deed and not a Warranty Deed. They may not want to pay for title insurance. If there is a problem after closing you are in a difficult position.
- The bank is exempt from disclosing defects in the property and limited in Lead Based Paint
disclosures. These homes are usually in rough condition and have been vandalized. Expect extensive repairs.
- The buyer must obtain their own Certificate of Occupancy in order to occupy
property in cities that require inspections. Some cities require that a Bond or Escrow be placed with the city prior to issuing a temporary certificate of occupancy. This bond, from $500 to $3,500, may be forfeited to the city if the property is not brought up to code within 6 months of issuance. Some cities will not even allow utilities to be turned on without a deposit.
- It may take several weeks of waiting and negotiating before a bank accepts an offer from you. Offers are usually countered and accepted verbally. The bank considers a verbal offer to be binding on you but not on them. Some bank addendums even have an escape clause for them essentially giving them the right to back out at any time and for any reason right up to closing. Banks do not usually accept really low offers. Instead, they will gradually reduce the asking price until someone takes it.
- Some bank addendums require you to pay the banks real estate agent a fee or bonus of several hundred dollars.
