What is an REO?
The term REO is an acronym for “real estate owned” and is the industry term for property that has been foreclosed and then repossessed by banks or lenders. If the lender or bank for the REO property is the highest bidder at a foreclosure auction, or if no one bids at the auction, the property reverts back to the lender and becomes an REO. REOs are properties owned by the lender who likely are not motivated to hold on to the REO inventory. These REOs will then typically be sold at values that most non-distressed sellers would find hard to compete against.
Is the price firm or will REO sellers negotiate?
All real estate is negotiable. The price for a REO is a function of its location, condition, buyer demand and comparable pricing. Many REO properties are already price-competitive and it’s not uncommon to see REOs settle at prices at or above the asking price after multiple offers. Although lenders who hold REO inventory want nothing more than to dispose of these real estate holdings, they now are much more sophisticated about both the timing of their inventory releases. If they flood the market with REO inventory they will depress pricing and hurt their equity in the home. The banks are mitigating their REO loses by selectively releasing inventory and have, in many market locations, stabilized and even increased pricing at the lower price levels. So the bottom line is: don’t expect to do a low-ball offer on an REO – it simply won’t work in a market already hot due to the once-in-a-generation bargains. What you can expect to get is a great deal on a wide range of quality properties. Our understanding of current market prices, direct experience with REO properties and a long history of intelligent real estate negotiations enable us to selectively target and price REOs that fit perfectly to your bottom line.
What condition are these properties in?
In many cases REOs are in reasonable to even excellent condition. On homes with “distressed” interiors, many lenders have enabled pre-sale repairs to the property to make the house presentable for marketing. This means that many obvious major cosmetic issues (wall condition, windows, doors, cabinets, countertops etc) have been repaired and other obvious issues with plumbing, roof, electrical, A/C & heating may have been repaired on REO properties. In many cases utilities are on so an experienced eye can spot any major non-cosmetic issues even at the first viewing. More aggressive property reviews can be conducted before and during contract negotiations and a paid, professional home inspection can be ordered in escrow. What is important to note is that in most cases any significant home issues known and disclosed by the REO listing agent and lender will already be factored into the price. With quality due-diligence, which we conduct on behalf of our buyer clients, a buyer can be assured of finding an exceptional value in their REO acquisition.
Will the lender make repairs as part of the contract?
Not typically. They’ve typically priced the REO property to sell – and quickly. They want the REO closed and they don’t want to stretch their resources further by making concessions on the contract. Well-priced REO properties may have multiple offers. Or your mortgage-based offer may be competing against a similarly-priced all-cash offer. Which do you think the lender will take? A “clean” contract (no or minimal conditions) will almost always get a more serious look from the REO seller. It’s not uncommon for a lower-priced offer from an all-cash buyer with no contract conditions and an earlier close to get accepted. Remember the lender wants to sell their REO…..now! Make it easy for them to want to accept your offer.
Who decides to accept my offer and how long does it take for them to respond?
In most cases it is a REO asset manager at the lender. Even though the offer may be subject to final approval by the management it is unlikely they will override the REO asset manager (let’s just say management is a little too busy to micromanage!). And the timing could be the same day to over a week depending on the management structure, the amount of work any given asset manager has to deal with and will usually be delayed due to multiple contract offers.
My offer was in first. Do I have priority?
No. In some cases the contracts get placed in a pile to be dealt with at a set date or time. In other cases the lender may be mentally “done” with the property and accept the first reasonable contract. Or they may be mulling over contracts and see a better offer (they do love cash offers with no conditions remember) and stamp it accepted right then. The lender will deal with the contract when they want to. But when they make their decision it’s firm. Now it’s up to you to close without delay.
How should I construct the offer to get a reasonable chance of acceptance?
Contact us. For the buyer, our REO representation doesn’t cost you a dime. We do the market research, we review the home and the local pricing, we talk to the agent or seller if available and we’ve done it many, many hundreds of times since 1993. Crafting a REO contract that will put you in a strong position for acceptance is a matter of experienced representation by agents who know how to factor in all the elements affecting the value of the property and then construct the contract to place you, our client, in a strongly competitive position.
How soon can I expect to get into contract?
What are your motivations? We strive to get the best deal for our clients and therefore we’re not shy about our approach to bottom-line pricing. Some homes may be overbid and although still a great overall price we may feel we can do better elsewhere. So it may take quite a few offers to get the home and price that match the contract goals we’ve discussed with you. And for the more motivated buyer due to a specific timing – the need to move, a 1031 exchange, a tax strategy, other life issues – then your pricing needs to be more flexible to secure a property. So it’s up to you. Tell us about the property you want and the budget you’ve planned. And then once we know your timing we’ll design a price and search strategy that fits into your schedule to get possession.