REO & Sales Price
Are REO Discounts Right for You? We never see a sign outside a bank which says "Labor Day Special, 10% off for the first 50 buyers who close their REO deals by midnight Sunday."
But maybe we should. REOs -- the "real estate owned" by lenders after a foreclosure auction -- are the basement bargains of real estate, the properties that are unwanted, unloved and sometimes undervalued. They also represent about 15 percent of the marketplace, according to the National Association of Realtors and in May typically sold with a 19-percent discount.
REOs are the tail end of the real estate disposal process, the place where distressed homes wind up when all else fails. The usual trajectory for a REO looks like this: An owner cannot make monthly payments and seeks a loan modification. Either the borrower does not qualify for assistance or a trial modification plan falls through. Next, the borrower attempts to create a short sale, a deal where a buyer and seller propose a sale subject to lender approval. If the sale price is too low the lender will veto the deal which means the home will likely be foreclosed. At the foreclosure auction the lender bids as much as it thinks the market will support.
At the auction anyone can bid and if someone bids more than the lender then the bidder gets the property. But what if the lender is not outbid? In that case the lender takes title and the property becomes a genuine REO.
Does the lender want to own such properties? No. The lender wants to lend, so there's a real willingness to sell off REO inventories. In fact, at legitimate distressed sale conventions REOs are often available in lots of 100 or more.
The primary attraction of REOs is price -- that typical 19 percent discount mentioned by NAR, a discount which depends on your jurisdiction, the property, its condition and other factors. However there's a difference between a low price and a bargain. Some REOs are perfectly habitable, well located and pretty much in move-in condition. But other REOs have been abandoned for months. They have not been maintained and some have been vandalized. Also, some REOs are occupied by former owners or squatters.
REOs and their discounts can be attractive, but not for every buyer. For information and details about the REO inventory near you speak with a sales professional from Carrington Real Estate Services. Get some facts, get some data, ask how REO issues are handled locally and check out financial requirements and the need for reserves.
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