What Exactly is an REO Property?
REO property is often a bargain for the real estate investor
What is REO property? REO (real estate owned) is property which has been taken back by the lender, it is “real estate owned by the bank/lender). It’s a property in which the foreclosure process is complete. REO properties may sell for less than comparable real estate listings because the lender needs to get the property off the books as a non-performing asset (they don’t make money on the property while it’s sitting and they are not making money on the loan that is in default).
However, the lender’s goal is to recoup as much of the loan as possible. In many markets today, the loan could be as much or more than the property is worth. The lender is going to take a loss, the questions is, how much? The lenders job is to limit the amount of loss that they incur. The differences between REO property and foreclosure or short sale property are:
- REO has already been acquired by the lender typically after a failed foreclosure sale or foreclosure auction (the bidding process at the court house steps often fails to produce a buyer. It’s risky to purchase a property in those circumstances. In a short sale, the lender does not own the property, it is still owned by the distressed homeowner (but, could easily become an REO property). We’ve seen the decision making process take so long on a short sale, that it became an REO.
- The REO is owned by the bank (or lending institution) and is listed as an asset on their balance sheet. In a short sale, the loan is owned by the bank and may or may not be a performing asset on their balance sheet, depending on if the owner is still making payments.
- In the case of an REO, the original home owner is no longer in the picture and the property is (or very likely will be) for sale. In a short-sale situation, the owner is still very much in the picture, is looking to “short” the lender on payoff and may have to obtain approval from other parties in addition to the lender before being able to finalize an agreement (mortgage insurance carriers and second lien holders to name a few).
The downside of REO property is that often times the REO property is not in good condition. A number of factors come into play — the lender has no interest in improving the property and the homeowner may have not been able to maintain it. If the property was a rental it may have been trashed by tenants. Typically, these properties are sold “as is”. The positive side of an REO is that a real estate investor or buyer can often purchase the property at a very competitive price in relation to the market.
What are your chances of finding an REO in Albany or Corvallis? Out of the 571 homes listed today (08-17-2009) in the Albany market, a quick check shows that about 18 are corporate/lender owned. In Corvallis, only one of the 415 listed properties were easily identified as corporate/bank owned. Philomath posted one of 74 as lender owned.
Note: statistics are for residential or residential with acreage, condos, manufactured inclusive
For more information on REO property click here.
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