Buying an REO or bank owned property can be a great opportunity for first time homebuyers and investors. However, before latching on to a bank owned property, it is important to realize that not all REO’s make sense. It is also important to obtain representation and weigh in all the factors. There can be additional costs involved and hidden costs for repairs. REO's may involve a lengthy closing process. Many prospective Buyers with the illusions of a "deal" may not realize what really is really involved in purchasing a bank owned propety. As such, it's important that you work with an experienced real estate professional to provide proper guidance.
The Pros:
The benefit to purchasing an REO is single. There is just one. It all boils down to money .... purchasing real estate at a discounted sales price. It can be a great opportunity for getting a bargain on a home. Especially if you don't mind putting in a bit of work to fix it up.
Generally the bank has a limited emotional attachment to owning real estate. REOs are categorized as a non-performing asset. The goal of the lender or bank is to mitigate further loss. So at times they may be willing to negotiate at a lower value than the typical sales transaction.
The Cons:
There are drawbacks to purchasing an REO, but they can be overcome.
Since the bank is now the Seller, there can be some additional paperwork involved. Also, rather than a General Warranty Deed, title is secured with a Special Warranty or Limited Warranty Deed. (The grantor, the bank, does not warrant against title defects arising from conditions that existed before they owned the property.) A Limited Warranty Deed is a formality. If a Buyer has concerns, he/she should consult with the title company or legal counsel.
The Bank will NOT provide a Seller’s Disclosure Statement. Knowing that, IT IS VERY IMPORTANT TO OBTAIN THOROUGH INSPECTIONS WITH THESE TYPES OF PROPERTIES. Buyers should hire a certified home inspector to provide a detailed breakdown on the condition of the home and whether it complies with current building codes. At times, a home may additionally require other professional inspections, such as a pool, HVAC, or roofing contractor. In addition, it is wise to investigate or inquire information about the surrounding neighborhood. Drive by the property at various times of the day and evening to obtain a sense of noise and traffic. Go online and investigate the crime rate for that area.
Properties are generally sold in “As Is” Condition. The Seller will not repair any damage to the structure, or replace or repair any appliances missing or broken. Basically, what you see is what you get! Other items that may not be provided to the Buyer prior to closing are a survey report and cleaning and may be additional costs to the Buyer.
Given the Pros and Cons, a Buyer should add up all the factors involved the purchase of an REO. Combine the cash required as a down payment, escrow and closing cost fees, inspection fees as well as the expense to retrofit or improve the property after closing. Next compare this value with other properties currently on the market and recent comparable sales. If the trade-off is lower, perhaps it is better to keep shopping. If however, the trade-off is higher, then purchasing a foreclosure or bank owned property may be a worthy investment.
On the whole the advantages of buying REO homes outweigh the disadvantages, especially for the first-time buyer, or the investor. Provided you are aware of the possible drawbacks and have a strategy for dealing with them, it can be a very good proposition.
For more information about REOs contact me.
The Pros:
The benefit to purchasing an REO is single. There is just one. It all boils down to money .... purchasing real estate at a discounted sales price. It can be a great opportunity for getting a bargain on a home. Especially if you don't mind putting in a bit of work to fix it up.
Generally the bank has a limited emotional attachment to owning real estate. REOs are categorized as a non-performing asset. The goal of the lender or bank is to mitigate further loss. So at times they may be willing to negotiate at a lower value than the typical sales transaction.
The Cons:
There are drawbacks to purchasing an REO, but they can be overcome.
Since the bank is now the Seller, there can be some additional paperwork involved. Also, rather than a General Warranty Deed, title is secured with a Special Warranty or Limited Warranty Deed. (The grantor, the bank, does not warrant against title defects arising from conditions that existed before they owned the property.) A Limited Warranty Deed is a formality. If a Buyer has concerns, he/she should consult with the title company or legal counsel.
The Bank will NOT provide a Seller’s Disclosure Statement. Knowing that, IT IS VERY IMPORTANT TO OBTAIN THOROUGH INSPECTIONS WITH THESE TYPES OF PROPERTIES. Buyers should hire a certified home inspector to provide a detailed breakdown on the condition of the home and whether it complies with current building codes. At times, a home may additionally require other professional inspections, such as a pool, HVAC, or roofing contractor. In addition, it is wise to investigate or inquire information about the surrounding neighborhood. Drive by the property at various times of the day and evening to obtain a sense of noise and traffic. Go online and investigate the crime rate for that area.
Properties are generally sold in “As Is” Condition. The Seller will not repair any damage to the structure, or replace or repair any appliances missing or broken. Basically, what you see is what you get! Other items that may not be provided to the Buyer prior to closing are a survey report and cleaning and may be additional costs to the Buyer.
Given the Pros and Cons, a Buyer should add up all the factors involved the purchase of an REO. Combine the cash required as a down payment, escrow and closing cost fees, inspection fees as well as the expense to retrofit or improve the property after closing. Next compare this value with other properties currently on the market and recent comparable sales. If the trade-off is lower, perhaps it is better to keep shopping. If however, the trade-off is higher, then purchasing a foreclosure or bank owned property may be a worthy investment.
On the whole the advantages of buying REO homes outweigh the disadvantages, especially for the first-time buyer, or the investor. Provided you are aware of the possible drawbacks and have a strategy for dealing with them, it can be a very good proposition.
For more information about REOs contact me.
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