REO (aka Foreclosures)

REO’s or ‘Real Estate Owned’ is what most people think of when they think of foreclosed properties. These are properties that are now owned by the bank. having been bought at a trustee sale after a long drawn out foreclosure process. Since banks are not in the business of owning property they try to sell the property as quickly as possible in an effort to minimize their losses.

When selling these properties, just like most sellers, they use a local real estate agent, An appraisal is done and a broker’s price opinion, BPO, is produced by the listing agent. The house is then listed on the multiple listing service, MLS, and buyers can make an offer.

We are currently seeing a small amount of these properties entering our local market. They seem to be priced below the true market value and are generating multiple offers. Why?

Why is the supply of REO’s so low when we hear about the large number homes being foreclosed upon? Speculation in the industry about the scarce inventory is that some of it may be the result of the 90 day moratorium on foreclosures that Obama put in place this summer. In addition, banks may be slowing releasing foreclosures into the marketplace. Dumping a large quantity of low priced homes on the market will result in lower prices, reducing the banks ability to recapture some of their losses. Whatever the reason, we do have a low inventory which is selling quickly and generating multiple offers at over asking price.

The benefit to buying a foreclosed home is the lower price. The drawbacks are that the process is competitive and many buyers are investors making cash offers. The properties can be in poor condition which makes them difficult to appraise at a value that would allow a typical loan. Many are also not eligible for FHA loans due to their condition.

REO’s may make sense if you are ready to make a decision quickly, have all cash and are ready for a project house.