3.3 min read
What is a REO property listing?
If you’ve been looking at homes-for-sale listings at one point or another, you will eventually find those discounted properties marked as “foreclosed” or “foreclosure.” But what is a REO property? Are they safe to buy? Can you save money by investing in a REO?
Understanding REO properties
REO stands for Real Estate Owned. It means the property is bank-owned after the owners defaulted on its mortgage and after the seller couldn’t sell the property at auction. Homebuyers and investors can typically purchase these distressed properties for a price below the market.
This fact can make REO properties a great opportunity if you’re looking into buying a new home or an investment property at a lower price, with a possibility of high attractive profit margins.
Is REO the same thing as Foreclosure?
Yes. Foreclosure is the name of the process that goes from the payment default to the bank repossessing the property.
In popular real estate listings websites, you’ll usually find REO properties tagged as “pre-foreclosure,” “foreclosure,” or “foreclosed.” Those are all stages of the foreclosure process.
It works like this:
- The owner or borrower fails to pay their mortgage for a certain amount of time. This period varies according to each mortgage contract, but it usually starts at three months.
- Pre-Foreclosure: the bank or lender then starts the legal proceedings with a notice of default. The lender will also inform the authorities and file a lawsuit with the court. At this stage, the owner can still take some action to stop the process from continuing.
- Public Auction: If the owner didn’t take any action and didn’t negotiate or paid their dues, the property will then go into a house auction at the courthouse. This is the first opportunity people will have to buy this kind of property. The lender places the first bid, and whoever else wants to buy it will have to outbid the lender and pay a full cash offer.
- REO (Real Estate Owned): If The seller couldn’t sell the property at the public auction, it will then go to the first bidder, the lender (or the bank), and put for sale on the market for a lower price.
The lower price often happens because the lenders (or banks) have no interest in having property assets. Their preference and real profit come from money. Therefore banks usually facilitate the sale of foreclosed properties, sometimes giving some privileges to the 3rd owner, for example, waving the possibility of a second foreclosure, discount in prices, and other negotiable terms.
This is why it’s essential to get in touch with a REO agent if you’re considering buying a foreclosed property. They will do the negotiations for you, and they are experts in navigating this process, bringing you a good deal.
Pros & Cons of REO properties
- Discounted prices
- No homeowners to deal with
- REO properties come without outstanding taxes
- Less competition in some cases
- More negotiable terms
- The lender usually does house inspection before the sale
- Potentially high returns
- REO properties are usually sold “as is” if they’re safe enough, so you might have to fix them up
- Some properties have been vacant for a long time so that they might have deteriorated quite a lot
- Heavy competition in some cases, depending on the property and the area