Buying an REO (Real Estate Owned) requires a lot less adrenaline than going to auction. You normally have advance access to the home. You can commission a home inspection or have your contractor examine the property. And you get the opportunity to verify title and liens and do all the other due diligence you expect. It's not all that different from buying from a resident owner who's moved out.
However, you still need to convince (the bank) that you're an agile and credible buyer. So you need to have your funds or your financing in place. With REO, the bank that owns the property may be willing to finance it for the new buyer.
Where do you find REO properties?
There are several sources of information about REO homes.
· Local MLS (multiple listing service), which local Real Estate Brokers can access
· Listing sites often include REO properties and you can search for them specifically.
· Larger banks often have REO departments and promote and sell their own listings
· REO specialists list only REOs
· Foreclosures of FHA, VA and USDA homes are listed on HomeSales.gov. and Fannie Mae (HomePath) and Freddie Mac (HomeSteps) also list foreclosures on their books
To bid on government foreclosures, you must be represented by a licensed real estate agent. And you will want the guidance of a buyer’s agent no matter where you find your foreclosure property.
Buying a foreclosure home in a seller’s market
We are currently in a Sellers Market
While the deep discounts of the Great Recession may not be common, you can still find bargains in today's seller's market. One way of competing with investors with all cash offers is to buy government foreclosed homes. They often give individual buyers looking for a home a window in which they can bid and investors are only allowed to jump in if there are no credible offers from owner occupiers.
And good deals for REO homes have not completely disappeared. But the relative safety of those homes comes at a price - a lower discount compared to homes sold at auction. One way of negotiating a lower price for an REO is to make your offer as clean as possible. You may be able to pay less with a high earnest money deposit and no contingencies.
Is it worth it?
You can still make money buying foreclosures and REO. Auction.com states in its most recent report that foreclosure auction properties sold for 20.8 percent below their estimated market value. However, this does not consider the amount the buyers had to spend on repairs to bring the properties up to neighborhood standards.
Your return also depends on where you buy. CoreLogic's latest report indicated that in the top markets, investors made 58.9% to 95.9% flipping homes. While in the bottom markets, they realized just 5.1% to 10.8%.
If you have the resources, skills and commitment necessary to make a success of your purchase, the answer is yes. It's worth it.
In healthy real estate markets, there are not nearly as many REOs. In 2009 and 2010, foreclosures were running at about 2.8 million homes a year. But by 2018, that number had plummeted to a 13-year low.