Is REO the Way to Go?

Real Estate Owned (REO) properties have become a common fixture on brokerage listings all over the country. They are pieces of real estate which have been foreclosed on, but failed to sell at the right price at the resulting auction. REO properties are owned by the lending institution which foreclosed on the mortgage.

Many buyers are interested in REO properties, for a number of different reasons. But, should you focus on REO properties in your search for the right home? Let's weigh the pros and cons of hunting for these types of properties.

Positives

You do stand to get a bargain. Lenders are not too interested in a lot of home inventory. A few years ago, one or two REO properties would mean lenders would sit on them until they got a price they wanted. Today, though, with so many properties foreclosed on, banks and other institutions may be looking to offload.

The process is the same as with any other property purchase, except you are dealing with an entity instead of a person. This means you can get a house inspection, apply for financing, and the other steps you would normally go through with a purchase. Many of these steps are not an option with other "bargain potential" properties.

They are maintained. REO properties are listed through brokers, and both brokers and institutions have an interest in the sale. Unlike distressed properties, REO pieces are kept in good shape so they are appealing. Don't expect renos, but don't expect to have to cut down ten foot tall grass either.

Negatives

You won't get as low a price as you might on other "bargain potential" properties. When you're looking at short sales, pre-foreclosures, and even foreclosure auctions, you are dealing with individuals or at the least rules. With REO properties, you have to deal with savvy lending institutions who can sometimes wait until they get the offer they want.

It's unpredictable. We say sometimes, because what REO homes are sold for depends on the status of the bank. If they have a lot of inventory, they might be better prepared to sell at a lower price. If not, or for reasons unknown, they might drive a hard bargain.

So that's the skinny on REO. It doesn't take as much savvy as other bargain potentials, but then again you don't stand to save as much on the purchase, either.