REO HomesREO Homes are foreclosures, properties that are now owned by the bank. REO's offer an excellent opportunity to purchase a home at a reduced price. When a bank forecloses on a property, it must now list the property on its books as an asset. Since banks are not in the owning real asset business, they get penalized for having large numbers of foreclosures on the books. Thus, they are highly motivated to sell these homes. They want to get these foreclosures off their books, but they also want to recoup the loss from the loan that was not paid by the owners of the house. So, the banks often find themselves in a challenging situation. Furthermore, at certain times of the month and year, banks are even more pressured to get some REO's off their books.
The Catch-22 for BanksBanks are now finding that many people want to buy their REO Homes. An extensive amount of information is flooding the real estate investing market about foreclosures and how to buy them.People are understanding the value that can be had in buying a bank owned property. People who are handy with a hammer are buying REO's that need lots of work and doing the work themselves. The other clientele of home buyer is looking for REO Homes that don't require as much work. For these homes, a new situation is occurring which goes beyond the norm. The norm is that banks employ asset managers whose job it is to unload their REO Homes. Then the asset managers find specific real estate agents with whom they can list these houses. Some agents have a prior history with the asset managers and other agents target the asset managers as clients so they can always get listings. That makes sense; agents need to sell houses to earn their commission. So, if they have a constant supply, i.e. from the foreclosure flood, then they have a headstart on other agents for gaining those listings.
Bank --> Asset Manager --> Specific Real Estate AgentThe latest trend is now for the REO Homes that need minimal repair or rehab work to actually sell for a bit higher than other REO's. Strangely enough, these foreclosures are actually receiving multiple bids.Home buyers in this sub-niche market are still trying to get a deal, using the foreclosure market as leverage. But at the same time, the agents are now trying to get near-top-dollar because they know that these particular houses are move-in ready. When an agent receives a listing, they perform a Comparative Market Analysis or CMA. The CMA gives them the nearby houses that are similar in size that have sold recently and are up for sale currently. This information provides the agent with a good idea of how much they should sell their new listing for.
Comparative Market AnalysisNow the agents have an idea of where to start the offering price for this house. Then when an offer comes in they can take back-up offers to get the highest price. This is exactly what the bank wants, the highest price possible.The bank wins because they can recoup more of the lost loan proceeds. And, the buyer wins because they can move in immediately because they get an REO that needs minimal work. REO Homes that are in good shape provide a climate that is reminiscent of the old California market where homes that were put on the market at 5pm on Monday, had eight offers in by Tuesday morning. What type of REO are you looking for?
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