REO properties or Real Estate Owned properties are essentially plots or houses that are in the possession of a bank, financial institution or government due to a failed foreclosure auction. These are actually properties that have been mortgaged and plunged into a state of distress due to failure of paying the mortgage dues, which have been seized by the lending agency (upon non-payment of the dues).
The financial institution, which is the lender in the case, estimates the equity of the property before deciding on two possible options- a short sale, which, if not afforded by the owner of the property, culminates in the second option which is the foreclosure.Generally, a property may reach the foreclosure auction level only if its market value falls well below the loan amount initially, as, if the market value were high, the owner would have gone on to sell the property to pay off the loan.
More often than not, the banks and lending institutions face a failed auction due to which they retain the seized properties, which are then called the Real Estate Owned, or REO properties.
REO Properties: Further Course
The retained properties generally fall under the category of non-earning assets, and the banks and financial institutions then decide on further course of action on the properties, such as consultation with an REO manager of assets to set up a proper sale profile or selling the property on their own.
Any liabilities and liens are removed from the property and proper channels are chosen to put up such a property for sale at a price recommended after considering the position of the property and consulting with REO realtors.
REO Properties: What you’re looking for
Investment savvy people looking to buy property may consult with an REO realtor for any good property up for sale. Also, since the property is in possession of the lenders after a foreclosure bid failure, the price set up for it would have discounts and offers to compensate the condition of the property while selling.
Bulk REO properties are a green field for real estate investors, as the properties are all offered at very low market prices and come with high discounted offers, which the investors can cash in on and obtain bulk property.
The bulk REOs come with their own set of limitations, such as un-ideal locations, poor maintenance and low market demand which result in their selling price set at a level almost 50-60% lower than their actual value on the market!
REO Properties: What to Know
While this might be a fertile investment opportunity, some measures are to be taken while investing in the REO property.
The interested individuals must conduct a thorough history check of the property that is on sale, compare the prices with that of similar property in similar conditions and neighborhood, look up the credibility of the REO agent who has brought the offer and enquire about the number of offers that the property has got.
If the number is low, the subsequent listing price may be negotiated at an even lower price. Thus, REO properties might be worthwhile investments if the initial barriers of credibility and return-on-investment are crossed!
