In the last 2 months foreclosures have risen slightly in Travis and Williamson but more so in Williamson County. What this means that in the next months there will be more foreclosures on the market soon for buyers to potentially get better deals on just in time for the buying season. I thought it would be a good idea to briefly point out some points to keep in mind when purchasing REO properties.
What is an REO Property?
REO stands for Real Estate Owned, which basically means that the bank acquires the property due to a foreclosure or deeds in lieu of foreclosure.
After the foreclosure process has completed and the bank regains possession, in most cases the property is assigned to an asset manager who interns works directly with a Realtor. The Realtor then goes and assesses the condition and suggests a fair listing value in current condition so the home can be sold. As with all foreclosures, there is no information about the condition of the property, no ability to obtain documents from the previous owner, and the property is sold as is. This means that there are no negotiations for repairs in most all cases.
So how does a buyer or beginner investor find an REO?
Even though there are some pay sites that may give you information such as pre-forclosures watch lists, short sale lists, and foreclosures lists, most all of REO properties end up on the regular MLS. I normally set up a search for my clients where I can set up specific verbiage to filter out and produce the most accurate results for REO properties. That and I work closely with a Realtor colleague who works only with REO properties. I know when she will receive new properties prior to listing then I simply give my clients the heads up.
So how does a buyer approach an REO property to offer on?
Through a Realtor. There is no negotiating directly with the bank for many reasons. One main one being that the bank wants representation from their preferred Realtor to perform the job of selling the property for them. (You would want to have Buyer Representation on your side as well) The REO Realtor fields any inquiries, handle paperwork and procedure, and serve in the bank’s best interest. There is no reduction in price in lieu of a Realtor’s commission on either side as it is already built in to the agreement from the bank, so it costs nothing to have some one on your side that knows how the process works as it is intricate. Most banks want a quick close normally within 30 days or less so this is more likely if both sides are properly represented.
How do I determine the best offer price?
How much depends on carefully analyzing all the factors and condition of the home.
One thing to mention is that REO foreclosures are a hot commodity now especially with the attention that it has gathered in the main stream media. (particularly sub $200K) The difference for Austin is that our market does not have an excess of foreclosures where the market is flooded with them when compared to other markets like Dallas for example. Further, this means that there is more competition from able buyers/investors here locally which leaves little room for procrastination and low ball offers. Just a another indication that our market is a healthier one than most. So be prepared to act because if you don’t someone else will.
What are the costs involved when buying a REO?
Since there is no information about the property, it is detrimental to be as thorough as possible. This means be prepared to have inspections on everything. Not only a home normal home inspection but if the home has a pool or a septic, you will want to inspect those too. Also you will have to buy a survey in most cases (as a lender requirement) if there is not one on record at the county which for a normal home can cost around $400-$500. Be prepared for the upfront costs. While some of these costs can be negotiated in some cases its better to be prepared than not.
Most properties also have missing appliances such as refrigerators, in some cases ranges, dishwashers, washers, and dryers taken by the previous owners. Also in some cases flooring, sheet rock damage, and general repairs may be needed. Every property is different however especially in different price ranges. Normally I notice higher priced homes have less damage.
So what is the benefit of buying an REO?
Even though there are upfront costs, the benefit comes into play by way getting a house that is less than market or new. What I advise people is to have vision and I help estimate costs to personalize. Know the cost to fix things or using sweat equity can go along way in terms of cost saving. If a house can be had under value and it is livable, changes and projects like new paint, flooring, and counter tops can be done over time. So many times buyers want a house to be perfect to move in immediately and can fore go a great opportunity to save. Remember a home is not a quick profiting vehicle. Value and equity come over time.
For more information or some examples of great REO properties simply e mail me and I will send you a current list of properties on the market.
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