How to Buy an REO Property – Your Concerns Addressed

As a real estate investor, you may have several seemingly lucrative options to choose from. It is likely that you have an acquaintance that invested in an REO property and struck a good deal. This would make you consider such an investment. However, before the final call, make sure you understand the concept of REO and the procedure of buying such a property.

What is an REO?

An REO or real estate owned property refers to an asset / property that is owned by a bank, financial institution, government agency or insurer after an unsuccessful auction.

Take a look at the following stages that lead to a property becoming an REO property.

The borrower draws a loan holding an asset / property as collateral.

  1. He is unable to repay the loan.
  2. The lender serves a ‘Notice of Default’ to the borrower. From here begins the pre-foreclosure stage.
  3. If the borrower cannot repay the debt, the lender lays claim over the property. In other words, the property gets foreclosed.
  4. An auction is held to sell the property and recover the debt.
  5. The auction does not find interested bidders.
  6. The asset becomes non-performing and gets listed as an REO property.

Jeff Adams, an innovator of repute in real estate, believes that investment in such REO properties is a good deal, if supported by the right guidance. These properties are ‘tied-up’ capital for institutions like banks and hence, they want to do away with it to free the capital. The freed up capital can be used to give away new loans. Therefore, REO properties increase the bargaining power of the potential buyer and may even turn out to be a cheaper deal for him as compared to the actual market value of the property.

The purchase of post-foreclosed or REO properties involves a detailed procedure. One should understand the procedure once they have made up their mind about such an investment.

  •  Hiring an REO Listing Agent

While your research may be strong, an expert is needed when it comes to locating good REO properties. Usually, REO agents carry out transactions in bulk and hence offer discounts to the banks in return of business. Very often, such agents are ‘top-producing’.

  •  Getting a Buyer’s Agent on Board

If you’re a seasoned real estate investor, an REO listing agent can be a good option. But, many of these agents are extremely busy to dedicate individual attention. At such times, it is advisable to get your own buyer’s agent.

A good buyer’s agent must be committed to protecting your interests, should have a successful track record and should not represent the seller. You must sign an agreement with the agent before commencing anything. The agreement has to clearly lay all the terms, conditions and commission clauses.

  •  Negotiation

Try and look for homes that have been in the market for more than a month. Banks are likely to move away from the asked price in such cases.

An agent or an escrow company usually negotiates such deals with banks.

  •  Purchase Contract

Most banks draw their own purchase contract with details about the property deal. Consult a real estate lawyer at this stage.

If the bank is firm about the selling price, you will receive an offer rejection. Wait for a month and make your original offer again and wait for 10 days.

  •  Acceptance

If your offer is accepted, the bank may ask you to draw a loan. However, you are not obligated to do so.

  •  Possession

Once the deal is sealed and payment is received, you get complete possession of the property.

If you have decided on investing in an REO property, trust experts like Jeff Adams who recommend strong research, good market knowledge and guidance from the right set of people for successful investments.