What is the difference between
a foreclosure, Bank-Owned or REO Home

What is a foreclosure property?

When a borrower defaults on a loan, the lender will start the foreclosure process.  Banks may try to work with the borrower through means of refinancing or a short sale, but if all alternatives fail, the home will be foreclosed upon and will go up for auction.  The lender has a reserve price that the home must sell for to pay off the mortgage.  Many times the bank’s set price is not met, and the bank becomes the owner of the property. Once this happens, the home is not a foreclosure anymore, but is a Bank-Owned, or REO, property.

What is an REO or Bank-Owned property?

Bank-Owned or Real Estate-Owned (REO) properties are those which belong to a bank or lending institution. Banks or lending institutions are in the business of loaning out money, not selling houses.  Banks end up as owners of homes and property for different reasons, the most common being that someone defaulted on their loan and the house was foreclosed upon.  This is why many times the terms Bank-Owned, REO, and Foreclosed Homes are used interchangeably, although technically they are not the same thing.

HUD homes, VA homes, Fannie Mae, Freddie Mac, and USDA can be considered banks or lending institutions.  These organizations have provided a guarantee on  mortgages.  If the loan is defaulted upon, these organizations take up the responsibility of paying off the loan and foreclosing on the home.  They can be categorized as Foreclosure Properties, Bank-Owned homes, or REO properties.  Use our search tool to find HUD Homes.

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Why is now a good time to buy a Bank-Owned Home? 

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As mentioned before, banks are not in the business of selling homes, so they are eager to get rid of them.  Bank-Owned homes often sell at a discount mainly due to the bank’s eagerness to get rid of them.  For this reason they are also often sold “as-is.”

Why buy a Bank-Owned or REO property?

Banks have an obligation to the stockholders of their corporation to maximize the return on a sale.  Therefore they are like any seller, with the objective to net as much money as possible from the sale of the property. However, in the current real estate downturn, banks are more prepared and capable of adjusting values to the current market than are most individual owners.  And with the current economic crisis in our country, there are more Bank-Owned homes in all price ranges than ever!

Are all Bank-Owned homes a good deal?

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Some are, but some aren’t. Just because a lending institution is the seller, that doesn’t mean that the property will sell at a discount. Like any seller, they will try to sell the house at market value.  The property’s condition, location, size and the seller’s eagerness to sell will affect the price.  Lending institutions request Broker Price Opinions (BPOs) from local real estate brokers in order to get a fair market valuation of the property.

Do all Bank-Owned homes need to be fixed up?

Foreclosed homes are in all sorts of conditions when the bank gets ahold of them.  Some are in terrible shape and others are move-in-ready.  Some lending institutions take the time to make repairs and updates to make the properties easier to sell, while others feel it is not worth their time and expense.

Why are REOs sold “as-is?”

Any seller of a home needs to disclose, by law, any problems with the home.  Since bank employees have never lived in the house, they lack the knowledge and history of what has happened there.  Therefore they often opt to sell the home “as-is.”  This avoids the need to research and disclose all possible problems with the property.

How do I get a good deal?

Get informed, have your financing ready, check often for new listings and/or price changes (create housing alerts), and be prepared to buy when the right property appears. Our buyers’ agents can keep you up- to-date with properties on the market.  Being prepared is essential–if you think you have found a good deal on a home, then more than likely someone else has or will be thinking the same thing.

Our agents can help you get the home you deserve.  Call or email us if you are interested in becoming a client.

How do I buy a Bank-Owned home?

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Do you have your financing ready? Browse our listings of bank-owned/foreclosure properties and then contact one of our Buyer Specialists today!