The Reo Advantage

By: Carolyn Capalbo

REO is real estate that is owned by the bank. The abbreviation stands for Real Estate Owned. In most cases the property will have initially foreclosed due to the owner's inability to make payments, and at this point the bank will purchase this property and attempt to sell it at a public auction. If there are no bids placed at this public auction, the bank remains owners of the property and it will be sold as REO.

A bank is not set up to deal with real estate transactions and the more time they hang onto an unsold property, the more it costs them in the long run. So, as you can imagine a bank is usually quite anxious to get such properties off their hands, and are willing to sell fast and cheap. This is an obviously advantageous situation for buyers looking for a smart real estate investment.

There are some distinct advantages to purchasing an REO over a foreclosure. With REO's you are usually able to set your own purchase schedule because you will not have an auction date you have to work around. Also, you will be entitled to a normal inspection, whereas with a regular foreclosure you are not entitled to this normally standard subject. With an REO purchase you won't have to worry about tenants and possible evictions as you sometimes have to deal with in the case of a foreclosure purchase.

Of course a bank being an institution that profits from investment, will want to turn their asset into a usable financial investment. A house that is sitting there is not helping the bank and so it's in their best interest to sell as quickly as possible. This leaves buyers with some extra negotiating ammunition. Usually in the case of REOs a buyer can bank on a purchase price that is quite a bit less than market value. As the bank will want to turn over a sale quickly, all costs, including interest and the size of the initial down payment are negotiable terms and can help you fetch the best price.

Of course there are certain instances where you should be wary of REO purchases. In most instances an REO purchase is a great investment and offers a 100% safe investment. But beware, just because a bank owns such a property does not mean that it is a great deal. You have to ask certain pertinent questions: Were there any liens on the property? Was the property damaged and is that why it did not fetch a sale as a foreclosure? Again, take full advantage of your rights to a certified home inspection and even an appraisal if you want to know more about the value of the property in question.

Another great way to be solid and sure on your REO purchase is to work closely with a real estate agent who specializes in REO sales.

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