Guide to REO Properties
When you’re looking to buy a home, you have more options than you might think. You can go the traditional route and work with a real estate agent to buy a home that’s been listed for sale by its owner. Another option is to buy a home through a short sale or during an auction. Finally, you might consider buying a real estate-owned property, or REO.
Buying an REO can mean you get a great deal on a home. An REO property also offers several other benefits you don’t get if you buy a home through a short sale or even during the typical home-buying process. Everything you’ve ever wanted to know about real estate-owned properties is right here.
Terms to Know:
Before we get into the process of buying a real estate-owned property or the benefits of doing so, it’s helpful to define a few key terms, so everyone is on the same page.
What Is REO?
REO is property a lender — such as a bank or other financial institution — has seized and foreclosed on. The lender has tried to sell the property at auction, but no one bid on it, or the bids they received weren’t high enough to meet the lender’s reserve.
When lenders approve mortgages for homebuyers, they have one goal in mind: having the buyer repay the loan, with interest. Lenders want their money back so they can continue to stay in business and make loans to other people or companies.
That’s not what always happens, though. If a person stops making payments on his or her loan, the bank or lender has the right to claim the property and foreclose on it, since the house or condo acts as the collateral for the mortgage.
Here’s the thing, though. A bank or other financial institution doesn’t want a home or other residential property. It has no use for a house. The foreclosed home typically becomes more of a liability for a lender than an asset, which is why lenders usually do what they can to make an REO more attractive to buyers.
For example, REO properties typically have a clean title, and the bank has cleared any liens that were on the properties. Institutions that have REO properties also typically offer them at a below-market-value price and might even be open to negotiating decent loan terms with the right buyer. The bank also has completed eviction proceedings to remove the non-paying former owner from the home, or has made a sort of “cash-for-keys” deal with the previous owner to get him or her to vacate the property.
What Is Bank-Owned Property?
A bank-owned property is merely another name for an REO property. It’s a house or other piece of real estate that has gone through the foreclosure process, was not sold at auction and ended up being owned by the bank or lender.
What Are Asset Managers?
Asset managers are the people or companies hired by the bank or lender to take care of any REO properties. An asset manager works to make the property ready for sale, and is responsible for hiring anyone else who will have a role to play in the foreclosure or sale process.
A few of the responsibilities of an asset manager include:
- Hiring attorneys, title companies, property preservation companies and an REO agent.
- Getting different opinions about the market value of the property.
- Sending a cash-for-keys offer to the occupant, assuming the property isn’t vacant.
- Overseeing property clean-out and winterization.
- Putting the property up for sale through the REO agent after sheriff’s sale/auction.
What Is an REO Agent?
An REO agent is a real estate agent who specializes in the sale of REO properties. If you’re wondering how to find REO properties for sale, or how to find bank-owned homes, your best bet is to work with an REO agent.
As you might guess, there are fewer REO agents in any given market than there are standard real estate agents. Depending on the volume of REO properties in a given area, a single REO agent might have dozens, if not hundreds, of active listings at any time. Typically, REO agents have listing contracts with local asset management companies.
What Are Bank Addendums?
Bank addendums are additions to the purchase agreement or contract between a buyer and the lender/bank. As you might guess, bank addendums usually provide some additional benefit to the bank, often at the expense of the buyer. The content of an addendum can override anything that was in the offer made by the buyer.
The sticky thing about addendums is this — you can’t move forward with the purchase of an REO property without agreeing to the bank addendums. And banks tend to be looking out for No. 1 — that is, themselves. One example of a typical addendum is the requirement that the property is sold “as-is,” meaning you can’t ask the bank to pay for any problems that crop up during the inspection.
In some cases, the addendum might add fees to the cost of the sale, or might shift certain responsibilities, such as paying some taxes, onto the shoulders of the buyer. An addendum might also give the bank the ability to cancel the agreement up through the sale date.
REO vs. Short Sale
People occasionally confuse a short sale with a bank-owned property, though the two are very much not the same thing. One of the biggest differences between a short sale and an REO is who owns the property. The original owner still owns a house that is up for short sale, while the lender has taken possession of an REO property.
What Is a Short Sale?
Sometimes, the amount a person owes on a mortgage differs from the market value of the home he or she wants to sell. In some instances, the value of the house is more than what’s owed on the mortgage, so the seller walks away with some cash in his or her pockets.
In other cases, the seller ends up owing more on the mortgage than the home sells for or could sell for. If the lender that owns the mortgage agrees to accept the sale price of the home, even though it doesn’t cover what’s owed on the loan, a short sale occurs. In the first quarter of 2016, around 5 percent of all home sales in the U.S. were short sales.
Usually, a lender will only agree to accept a short sale of a home if the owner is clearly having trouble making the monthly payments on the mortgage. In those cases, a bank might decide that it’s better to get a portion of what is owed, rather than move through the foreclosure process and end up with an REO property to unload.
That said, short sales aren’t a perfect solution, and they can be more complicated than they look on the surface. For one thing, unlike an REO property, buying or selling a short sale property doesn’t wipe out all the liens on the real estate. A buyer who purchases a home during a short sale might end up buying a property that doesn’t have a clean title.
Other drawbacks of a short sale, especially for a buyer, include:
- Long closing process — it can take up to nine months for the sale to become final.
- House is sold “as-is” and might have a lot of unpleasant surprises. The buyer can end up with a money pit.
- Anyone with a stake in the property, such as lien holders or second-mortgage lenders, can jump in and disrupt the sale.
- Closing costs can be higher, since the seller and lender are usually less willing to chip in for “extras” which would be negotiated during a typical real estate sale.
Why a Lender Might Decide Against a Short Sale
There are a few reasons a lender might decide a short sale isn’t the way to go and might decide to move forward with a foreclosure, ultimately taking possession of the property.
- The lender might be better off collecting mortgage insurance on the home than having it sold at a loss.
- The current owner of the home isn’t able to prove he or she is struggling to make mortgage payments.
- The current owner of the home refuses to cooperate with the lender or files for bankruptcy, which would prevent a short sale from going forward.
How to Find REO Properties
In many ways, finding REO properties is similar to finding a typical house for sale. It’s just that instead of communicating with a seller who’s an individual, you’ll be interacting with a financial institution. You’ll also want to work with an REO agent, rather than a conventional real estate agent, as you’ll want someone who knows the process of buying and selling REO properties inside and out.
Step 1: Get Pre-Approved
You can get financing to buy an REO property if you need it. To get that financing, you’ll have to approach a lender for pre-approval. Getting pre-approved for a mortgage has several benefits. For one thing, it tells your REO agent you’re serious about buying a bank-owned property. For another, it allows you to move quickly if you do find the right REO property for you. You’ll have your financing paperwork in order, will know how much you can afford and will be able to make an offer without having to wait.
Step 2: Find Your REO Agent
Working with an REO agent when you’re trying to find and buy a bank-owned property has several advantages. Sure, you can find REO listings online or by contacting lenders directly. But an REO agent will let you know about properties for sale before they become available to the public. REO agents have relationships with local asset managers and can get you the scoop before anyone else.
Step 3: Check out REOs
Depending on where you’re looking to buy, there might be a multitude of REO properties to check out, or there might be just a few. Visit the REOs you are interested in with your agent, then decide whether or not you’d like to move forward and make an offer on any of them.
Step 4: Make Your Offer
Your REO agent will help you put together an offer on the property. But you can expect your offer to include a letter with the amount of your initial offer, a statement that you understand that you’re buying the property “as-is” and a clause that gives you an out if a home inspection reveals that the property would need extensive repairs.
Your agent can provide decent guidance when it comes to how much you should offer for the home. In some cases, it makes sense to offer what the bank wants. But if your agent suggests the bank is overvaluing the home or hints you could talk the bank down, it might be worth it to offer a little less.
Step 5: Schedule the Home Inspection
Even though you’ve agreed to buy the house as-is and won’t come back to the lending institution asking for a list of repairs, it’s still a good idea to have a home inspection before you close on the property. The home inspector can give you an idea of any damage to the property, the extent of the problems and an estimate of what it would cost to repair any issues.
At that point, you might go back to the lender and let it know if you’re willing to move forward with the sale, or that the damage is just too much for you to handle.
Step 6: Line up Your Repair People — If Needed — and Prepare for Closing
Once the inspection is over and you’ve agreed to move forward, all that remains is closing. You might also want to start calling around to repair people or tradespeople to get quotes for any problems that need fixing in the home before you move in.
How to Find Bank-Owned Properties in York, PA
You have a few options if you’re looking to find foreclosures in York, PA. The county’s sheriff sale listing page features a list of all the active or recently canceled sheriff’s sales in the area. You can see the bid amount on each property, the location of the homes and the names of the current owners.
You can also look for foreclosures or REO properties on websites that list foreclosures and home sales, including Auction.com and HUDHomes. But if you want the most up-to-the-minute information on REO properties, or if you want to learn about available properties before anyone else, your best option is to partner with an REO agent in York.
Why Contact an REO Agent
Because REO properties can be a great value for buyers, they tend to move quickly once they come on the market. They don’t have the complexities or potential loopholes short sales do, so a buyer who needs a house immediately is likely to move quickly when the right REO comes available.
You want to be proactive about contacting an REO agent, as he or she will be your best bet for finding out about eligible bank-owned homes before anyone else. REO agents are connected to the asset managers who list properties for sale, so they are on the inside track and get all the details before the rest of the world. Your agent will contact you immediately once a home that fits your budget or meets your needs becomes available.
In York, PA, you can turn to Century 21 Core Partners if you’re looking to buy a bank-owned property and need an REO agent. Visit our Agents page today to learn more about who’s who on our team and to get in touch with a real estate agent who specializes in foreclosures and REO properties.
Recent Company Testimonials
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“I was in the process of looking for housing in the York community. In January I reached out to a previous agent that we used to sell our previous home. It was not the greatest experience in working with her when selling our home but I am comfortable with those I am familiar with. In searching for a home in the community I ran across a home that Mr. Leroy Moore was the listing agent. I contacted him to look at that home. He shared that the home was already under contract but he immediately got to work on sending other similar homes in area. His immediate response caught my attention and after communicating with him, he thoroughly impressed me. Highly professional, attentive to my needs and very knowledgeable. He was so impressive that I contacted the agent that I was working with and informed her that I no longer needed her services. Mr. Moore's quality of service continued throughout the entire process. When I thought he could not impress me anymore he took it a step further to demonstrate how well he can negotiate and advocate, all the while seeking whats in the best interest of my wife and I. Attention to detail, immediate response, excellent communication throughout the process, education, personal service, personal interest, and many other impressive qualities. Mr. Moore is an excellent representation of a true agent who is genuinely invested in servicing his client's. What an amazing experience. If I need to purchase and sell anytime in the future I will absolutely seek him out. He would be very difficult to replace. This is my third home I have purchased and I have never been so impressed. WELL DONE and Century 21 should be highly appreciative to be represented by Mr. Moore.”
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“We met Leroy Moore at an Open House and appreciated his professionalism, knowledge and helpfulness in discussing selling and buying a home. Leroy is very detail oriented and extremely reliable. He kept in constant contact with us and informed us of important details during every step of the process. He was very patient in answering our many questions. Leroy Moore was extremely helpful throughout the process of buying our home. He is a great communicator and very knowledgeable. He was a pleasure to work with. He and his wife were so kind to leave a house warming gift and card for us in our new house the day we closed. We now count Leroy and his wife our friends.”
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“We were in a contract with a new home builder in York County Pa. The builder ordered our appraisal with the incorrect sales price. Due to the fact that we used VA finanacing our appraisal could not be changed. We needed sellers assistance to help with our closing cost. Eva went above the call of duty, and contacted the owner of the company to discuss the situation and come up with a resolution. The builder wanted to walk away from the deal. Eva's persistence and ability to solve real estate problems closed the deal.”
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“In my opinion Eve went well out of her way to help me buy the property I purchased she definitely went the extra mile and I would recommend her to anyone looking for an agent.”
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“We felt Tonya did an excellent job setting up appointments and negotiating deal. We were glad to have her in our corner. Tonya was a great resource and we appreciated all of her input. Thanks for thinking about us even after the sale. We will invite her to see the house when its done. We felt we gained a new friend through this experience.”
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“Tonya was extremely helpful in every aspect. She made sure that we had everything we needed, at the time we needed it, along with making sure everything was done correctly and on time. I’m so glad she was there every step of the way through our purchase. She made the stress of buying a first home, feel like the easiest thing. Would reccoment her to everyone!”
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“Eva was very knowledgeable in helping in buying are knew home, her vast knowledge and experience was a plus,also her networking network of associates was phenomenal, everything pretty much of what Eva said she followed through, very honest,trustworthy,punctual,professional, etc. Etc. She is the greatest, learning how reaestate agents work Eva is one of the few who are very honest!!! Based on experience from shopping for new home Century 21 it's a plus to you to have agents like Mrs. Eva.”
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“When I decided to sell the house, because it was a short sale, I was told it would take a long time . It only took 8 mos. Ms. Kelly was always considerate of my current situation and did everything to make this sale easy for me. Carrie was most helpful with working with the company that held the mortgage, she made many phone calls to Florida. Both Eva and Carrie were exceptional.”
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“We must say that after the wonderful experience we had working with Tonya, we are certain no one else could top it. She was definitely committed to providing us with never ending time and devotion, whether it be an early Saturday morning or late evening. Tonya really gave it 150% when it came to fine details and negotiations on the house we bought. Through countless phone calls and texts, her quick responsiveness and compassion to help us every step of the way proved to us she was fully devoted to doing whatever it took in helping us find our forever home. She never had that "in it for the money" attitude you sometimes hear about realtors. She not only helped fulfill our dream in finding our dream home, but we have also made a dear friend along the way. Highly satisfied all thanks to Tonya Wenschhof! She never let us down and always made herself available, working around my husband and I's work schedules. Tonya is very passionate in helping people fulfill one of their biggest journeys in finding a home and is committed to making the experience a memorable one. Thank you Tonya and may you have great success in helping many more peoples dreams come true!”
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“She is the best real state agent”
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“We found our total experience with Eva to be great. She was always accessible and attentive to every detail. Eva was very professional, but also extremely friendly and highly respectful. It was our first experience in buying a home, and she skillfully guided us through every step of the process. We would recommend her to others with absolutely no reservations. We are grateful for the experience we had with Eva. In addition to what was shared above, she helped give us both peace of mind in a very important transaction in our lives.”
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“Leroy and Tavy were great! I enjoyed every minute we worked together. They helped me so much with the whole process of looking for, and finally buying my house. I will recommend them to anyone looking for property.”
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“I think Leroy is not a typical sales guy who would push you and rush you just to make a sale. He will let you decide on your own what's best for you and he'll advise you the best that he can.”
