When an REO (Real Estate Owned) home is empty for too long it becomes a loss for the bank. Banks and mortgage companies are forced to sell foreclosed homes as quickly as possible in order to recover the unpaid loan amount. An REO home purchase is financially appealing for property investors and home buyers for several reasons. Banks aren’t in business to repossess homes, nor are they in the real estate business. They’re anxious to recover any losses as soon as possible and that can be of great benefit to buyers. Potential home buyers should spend time doing research before considering an REO home purchase, but the effort can pay off when thousands of dollars are saved in purchase costs.
Buying at Auction:
When a property goes into foreclosure the bank will first try to sell it at auction. Auctions often appeal to home “flippers” and experienced real estate investors. This can sometimes give professionals an edge over the average home owner, but this shouldn’t deter them from attending an auction.
Potential home buyers can search for local auctions online. Many websites list upcoming property auctions. Be aware, however, that many of these sites charge a fee. Contacting local county tax departments for free information on dates, times and properties is a cost-effective alternative.
There are some risks when making an an REO home purchase at auction. These can include:
- Home inspections are not performed on the home. Bidders won’t know if the property is in need of costly repairs.
- Cash on the spot is required. Financing is not an option.
- Buyers cannot purchase title insurance. Winning bidders must pay any liens, second mortgages and back taxes.
- Winning bidders are responsible for evicting any tenants or residents.
- Purchasing a home for more than it’s worth by over bidding is a possibility.
- All sales are final.
Contacting the Bank:
Auctions are sometimes unsuccessful because either bids were too low to cover any outstanding loans or there were no bids at all. The bank takes possession of the home and the title is cleared. The bank makes necessary repairs on the home and property in order to increase buyer interest. This is financially beneficial to potential buyers. It also removes practically all risk to the buyer. At this point, potential buyers can:
- Have the home inspected prior to submitting an offer.
- Get financing directly through the bank
- Be certain there are no liens against the home, which saves time and money on having to do a title search)
- Avoid having to evict any current residents.
Home buyers should consider contacting local banks to inquire about their REO home purchase programs and listings. Banks are often happy to share this information with consumers.
Consumers who are in the market for a new home should certainly consider an REO home purchase. The down economy has forced banks to foreclose on a record number of houses all across the country. The result can be savings to buyers that amount to thousands of dollars.