REO Houses

REO Houses is the sister site to REO Homes. This page gives additional information about these types of houses and how they sell.

Banks are charged approximately $5,000 per month for having a foreclosed house on their books. Imagine the cost for ten properties held over a period of six months or even a year. Also, understand that the homes they are holding once sold for much, much more than they are currently worth.

For example, in Southern California, a typical home may have been worth about $450,000. Let's say Speaker's Bank has the first mortgage on this house for $427,500, meaning the owners put down 5% or $22,500. When the market crashed, the owners weren't able to continue the mortgage payments and the bank foreclosed on the property. The property sits on the banks records for six months, after a previous six months which is how long it took the foreclosure process to be completed.

So, for a total period of one year, the bank received zero dollars on that property and then for six months was charged $30,000 in penalties and fines. In the meantime, the value of that property decreased from $450,000 to $280,000. The bank loses an additional $170,000 on the loan they wrote.

(Don't feel bad for the banks, though!)

This illustrates the motivation with which the banks are ready to move some of these REO Houses. This provides a window of opportunity for the bargain shopper. Houses like this are now on sale.

But, be careful in your purchasing process in this foreclosure market. Banks are so motivated to sell these properties (and now we understand why) that once you enter into a contract to purchase, it can become a very strict set of requirements that must be adhered to.

If closing doesn't occur in a specified time frame, the new buyer could be penalized by a daily fee charged for each additional day beyond the agreed upon date stated in the contract. This fee could be as much as $150 dollars per day. Again recognize that because the banks are penalized so heavily, they will try to recoup that as well by charging the new buyer.

REO Stats

The majority of REO's need greater than $10,000 for them to be move-in ready. Some need upwards of $20,000. These tend to sit on the market for long periods of time. Three to six months is normal for these foreclosures.

The small minority of REO Houses have not been trashed and are an excellent buy. Once potential buyers discover this, then a bidding war can occur. These houses will only sit for a few weeks. Some even sell within a few days. While the rest of the real estate market is still in the dumps, it is truly a seller's market for these types of foreclosures.

Another interesting thing about some REO Houses is that when the agent performs the CMA, Comparative Market Analysis, they eventually decide upon an initial listing price that is higher than the current average. These agents know that these REO's are going to sit on the market for about three months. So, they project what the future price might be three months ahead and that is what they list them at.

NOTE TO REO PURCHASERS:

If you are looking for a deal, be sure to discount the price shown on the listing. Negotiate, negotiate, negotiate. Lowball your first offer and work your way up. Remember there are a gazillion REO Houses on the market. Multiple offers will net you the one at the price you want to pay for it.

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