What is an REO?

The term REO home stands for a Real Estate Owned property, which means exactly the same as the term bank owned home or foreclosed property. Maybe you are considering buying a foreclosure home, but don't know where to start or what to expect. It is important to understand the benefits and challenges this type of listing may hold in store for any buyer.

What does an REO / Bank Owned really mean?

This means that the homeowner was unable to make the mortgage payments on the home and the bank has taken possession of the property. What usually happens is the homeowner falls behind on the payments and they have few options left. They may have been given the opportunity to put up their home for sale in what is called a “short sale”, meaning the lender would accept a selling price less than what the homeowner actually owes as payment in full. It is not the same as an REO listing and is essentially a last attempt to pay off the mortgage and not go into foreclosure. But if the owner can not sell the home in this way or continue to make their payments, the lender may attempt to sell the home at auction or simply foreclose upon the home, meaning it becomes a bank owned property or REO.

These types of listings may or may not be found within the local Multiple Listing Service (MLS), which compiles a list of available real estate for sale by licensed real estate brokers. It varies, according to schedule and plans of each lending institution, when and if the REO gets placed in the MLS.

Will this REO home be a great deal?

The answer to this important question is a solid maybe. You may save on the selling price of the home, but you must remember that the bank will be trying to get the very most they can toward what they are owed by the homeowner. You will probably pay for your savings in time, effort, fret, and frustration.

REOs offer unique challenges and even a little financial risk since you may also be responsible for extra fees and expenses when shopping for an REO home, whether or not the home for sale actually becomes yours. For example, there is the home inspection, which buyers should absolutely have done on the REO home. More than likely no matter what the findings, the bank and homeowner will not pay for any repairs or renegotiate the selling price you originally agreed to. This means you pay for an inspection and it is up to you to also accept whatever repairs are needed as your own responsibility or you may choose to walk away. You will not be reimbursed for the cost of that inspection, which could cost you approximately $350 to $500.

Does an REO sale take longer to close?

Since the rise of foreclosures in recent years, banks have learned a lot about how to streamline the process of dealing with selling foreclosed homes. An REO home does not usually take much longer than a typical home to close, which is approximately 45-60 days.

Speak to your Realtor about your interest in looking at REOs or bank owned homes. For some home buyers it can be the answer to finding a new home at a great price.