January 8, 2008
REO Properties and Bank Foreclosures
Note: check out our database of foreclosure properties which has over 1.5 million listings including an extensive supply of bank foreclosures. It now includes all Wells Fargo foreclosures since their asset manager, Premiere Asset Services, has signed up.
Whether you are searching for a new home, a second home or seriously considering real estate as an investment, you will find there are different options available to you. These choices can include traditional home buying, purchasing through an auction and many other possibilities. One alternative you may not have considered is bank REO sales.
If a bank cannot sell a property at a bank foreclosures auction, the bank may do an REO sale. This can happen when the amount owed on the property is more than the value of the property. When this is the case, the bank tries to sell the property not at an auction where the price can be lower. At this stage of the process, they will most often sell the property through a realtor.
A prospective or current investor can find bank foreclosures in many places. Banks are a good first stop, as they often have web sites where you can search for a property in a location you are interested in. These sites will let you filter a search by price, amenities, and any other factor you my find of value.
A great way to find countrywide REO properties is viewing third party listings. You can find many third party or independent web sites that provide property information. However, you must exercise caution. Not all web sites can be trusted. Be careful when dealing with third party listings, and make sure to use your best judgment.
Every successful real estate investor has good sources of property deals as a key part of his arsenal. One option that you may consider is that of bank foreclosures and REO properties. If a bank fails to sell real estate at a foreclosures auction, they will commence an REO sale. Properties are often sold cheaply at this stage because they did not sell during the foreclosure process and once they are owned by the bank they are simply an expense that needs to be removed from their accounts.
Further Resources
For more information about foreclosure investing, including where to locate some great deals I suggest you checkout "How to Get Rich Buying Foreclosures Dirt Cheap".
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Filed under Acquisitions by Scott Roemermann
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Comments on REO Properties and Bank Foreclosures »
A slight clarification. You wrote:
"If a bank cannot sell a property at a bank foreclosures auction, the bank may do an REO sale. This can happen when the amount owed on the property is more than the value of the property. When this is the case, the bank tries to sell the property not at an auction where the price can be lower. At this stage of the process, they will most often sell the property through a realtor."
Technically a foreclosure action is a forced auction. The present owner is being forced to auction the property to clear a debt. The opening bid is submitted by the lien holder who is forcing the auction. If no one else bids then the lien holder (normally a lender but not required) 'wins' the auction.
If the winning bidder is a bank or other regulated financial firm then the property becomes an OREO property. Other Real Estate Owned by the bank. People use the label REO for all such property. The bank is the owner and they can do what they want to sell the property. Legally they have to get rid of it as banks are not allowed to hold real estate for investment. This is why a bank will discount if that is what it takes to get the property sold.
The bank can list the property with a licensed agent, they can put it out for auction, they can sell it as part of a portfolio, and other ways to get the property off the books of the bank.
John Corey
Thanks for your input John.
This is a very relevant post right now. Some sweet deals can be had by picking up foreclosures, just don't base your "good deal" off what it sold for during the peak, but instead base if off sound real estate investing valuations.
We are dealing with a property right now that is an REO. We are in good position to purchase this property for 30% AVR. There are serious foundation issues with the property, over $120K of repairs required to stop the house from sinking, and no guarantees to the levelness of the floors. We know the bank has used 3 top REO brokers in our area over the past 2 years trying to move this property, and they just cant move it. The property has an ARV of $799K, and our current offer is $250K cash no contingencys. The listing broker is even in our corner for this one, just to get rid of it because they know the problems and even most investors wont touch something like this, but time and solid construction estimates are phenominal negociaters. Doesnt hurt to have the listing broker pushing the offer.
My mother-in-law wanted a good list of foreclosures so I sent her to your blog to look at the list you have. They are thinking about getting involved in Real Estate Investing and want to start with a REO Foreclosure so with the help of your blog I'm hoping she will be on her way. I appreciate all your hard work and keep up the great posts.
Great post. I like the search and the sites you have on blog i seem to find more properties on some of them.
The fact that banks can not own property anymore seems like half the problem with the credit crisis right now. If they had to hold the loan instead of selling them i think they would not have given so many bad ones out.
Tony,
Banks have not been able to own property as an investment since the 1930s. In other words there has been no change in a long time on that front.
More banks are selling on the loans they originate. While selling on the loans has existed for decades it did become a lot more common in the last 10 years. You are correct that lenders who sell on the loan book have less incentive to make sure the loans are solid and that they remain solid. At the same time the investors buying the loans should be more intelligent when they buy.
John
You nailed it John.
I use a few sites to look at foreclosures and i found some on your site i never would have. Great site with one of the better search for forclosures i have seen. You also list some of the best sites to look for more poperties no matter the type. I also like the hud homes search.
I was just wondering if anyone knows of reo companies to sign up for appraising. Thanks
Thank You
Rudy
Although REO's are typically a great investment, there is still room for price corrections in many markets. That said, REO prices are going to be further reduced by banks who are dying to get them off their books.
I like your foreclosure search best. Have to say that it seems to list more than i find in my own area. For some reason you have more homes listed and some better ones.
Thanks Ken. Kudos to my friends at foreclosure.com.
I have heard that some people are also buying pre-foreclosure list from people that hunt through the records at the court houses and then they compile their list and sell their data to investors – what is your take on this? Do you think those list are worth buying for your local markets?
I've had no experience with such lists but it sounds like it could be a useful source if you are confident in the quality of the data. The other thing is you obviously don't want too many investors working the same list.
Anyone had experience with this?
Though foreclosures are the big buzz word right now, the inventory of REO property is quickly becoming the bigger problem depressing housing prices. Scott was ahead of the curve posting on REOs nearly a year ago.
Since this has been posted the REO market has really been heating up. The online lists are great resources, but if you plan to do this on a bigger scale nothing can replace personal relationships with your local banks. Many of the smaller guys don't have much of any online presence and also often have more incentive to move their properties than some of the bigger banks. This means better deals and bigger profits for you.
It's truly amazing how big of a problem REOs have gotten. Even here in Dallas we have our share of them and we are supposed to be one of the healthiest housing markets! I've seen concrete block homes selling for less than $30 per sq ft in Pt Saint Luice, FL. I'm talking 100k for a 3k sq ft house built out of concrete!
Reo Properties | Bucks County Real Estate @ 11:02 am
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Some sites are better than others for finding REO listings and I agree that the banks themselves are a wonderful source.
If an investor does have all cash, they may just want to skip the REO's altogether and go to the auctions. It takes some time to get prepared and do research, but some great deals can be found. Just keep in mind that the majority of banks ask for the total price of what is owed to them as the starting bid and in this economy, a lot is owed, so you have to investigate to find the best ones. Retran is one of the best places to do this research.