Thinking about buying an REO? Intro Blog To Buyer Motivation Series
Every real estate purchase begins with a motivation. Many people looking at REO properties are looking purely at the investment value. Buy low, hold, sell high.
An REO is property that goes back to the mortgage company after an unsuccessful auction. This property has completed the entire legal process, know as foreclosure. Most foreclosure auctions do not generate any successful bids. If there was equity in the property to satisfy the loan the seller would have sold the property and paid off the bank.
From a legal standpoint - there is relatively little risk in purchasing an REO, as the bank is responsible for providing clear title and in most cases, also pays for an owner’s title insurance policy. If for any reason the bank uses a form that does not provide for a title policy, your Realtor can put language into the contract that makes closing contingent on the title being clear of defects. If you are financing the property with institutional money (i.e. bank or Mortgage Company) your lender will also require a lenders title policy. This will be at the buyers’ expense and typically costs about $250.00 to $350.00, regardless of the loan amount or purchase price.
Also, know that REO purchases are typically “as is.” That is not to say that you cannot have an inspection done and one is recommended. It is simply that the lender is not agreeing to pay any repairs. This can be a point of renegotiation once an inspection report is obtained. However, the lender is under no obligation to renegotiate.
Always look at the property to determine its condition, as some sellers loosing their property to foreclosure are irresponsible in the maintenance of the property and in some cases outright vengeful. The property may be “trashed,” or have no appliances or worse. However, many of the Asset Management companies, listing Realtors and lender-owners will make repairs prior to listing the properties for sale. You need to do your homework!
Helping buyers decide the right properties is one of my constant goals and varies depending on the what, why and how motives of the buyers. What are they looking for? What is their timeframe for the purchase? Why do the want to purchase? How do they intend to use the property? How long do they intend to hold the property?
This is the introduction piece to a series of blog postings that will delve into the motivations behind purchasing REO properties. The current selection of bank-owned homes is large and the inventory is growing. However, buyers cannot be complacent, since homes are selling. Just this morning, record sales increases for September were announced on national news. This upturn in housing sales was contributed in large part to the foreclosure homes being sold for exceptional deals. Have questions or comments? Let me know.