Home buyers are attracted to REO homes for sale primarily because of the price and also because of the general perception that real estate owned (REO) homes are safe transactions. However, a buyer should still prepare before making any offers. Understanding the reasons behind banks’ willingness to offload properties on their books will help a potential buyer negotiate a better deal.
Why banks are eager to sell
REOs are properties that banks have purchased from owners who have defaulted on their loans. These homes are first offered at auction and become REO when no winning bidder is declared during the auction. Most banks are eager to get rid of these residential properties because they represent bad loans and because they are not liquid assets.
A bank prefers to deal in cash or liquid assets and REOs are not. Furthermore, banks are primarily financial institutions that handle money, not real estate. Having properties on their books means that they are forced to take care of these REO homes for sale until they are sold. Maintenance can cost money and the bank will not get any refunds until the properties are sold.
Buyers’ opinion of the deal
A buyer should always make an offer on an REO only after a thorough inspection, as these properties are offered “as is.” They shouldn’t expect the deal to be completed within a week, so buyers looking for a home they can occupy immediately may be better off looking at other types of residences. REO offers can drag on for months as many bank officials will have to review and make decisions on the offer.
Buyers should also expect stiff competition from other interested buyers. The best initial offer is 20% below the median price of homes in the same category and in the same neighborhood. If there are other bidders, the offer price can go up a bit more if the buyer is really interested in buying it.
REO homes for sale are very affordable, but buyers must learn to negotiate to lower the price even further. Hiring a real estate agent is always a must in transactions like this as they know the process better than anyone.
