Many people ask what does REO mean when buying real estate? In a nutshell, REO stands for ‘real estate owned’ and references foreclosure homes and commercial properties owned by the bank. When foreclosed real estate is returned to lenders, the bank becomes responsible for maintaining the property and listing it for sale.

When people ask what does REO mean in terms of buying properties as reduced prices it becomes a bit cloudy. Banks typically list foreclosure homes around 10-percent below the appraised value. Lenders must consider current market value, along with financial losses incurred during the foreclosure process including removal of creditor and tax liens. Liens and judgments must be paid or removed before properties can be sold with a clean title.

Bank owned foreclosure real estate is sold through the servicing lender’s loss mitigation division or an assigned realtor. Property prices are based on the aforementioned criteria and sold in “as-is” condition. Buyers are financially responsible for required repairs needed to return the home to livable condition. While some bank foreclosures are in impeccable condition, most require some level of repair or renovation.

Banks generally obtain broker price opinion real estate appraisals to determine the fair market value. BPOs are less expensive than traditional property appraisals. In most cases, a drive-by BPO can be conducted, but some properties will require an internal inspection to determine property condition. While BPOs provide adequate estimates for obtaining an accurate property value, buyers should obtain a professional appraisal and home inspection prior to submitting their offer.

When additional repairs surface during property inspections, buyers should obtain repair cost estimates to further negotiate the purchase price. Additionally, buyers should photograph major repairs discovered during the inspection to present to the real estate agent or loss mitigator managing the REO sale.

REO properties are a good choice for first time home buyers, individuals looking for an affordable second home, and real estate investors. Investors often buy bank owned real estate for use as rental property or lease-to-own homes. Since real estate owned property is priced below market value, investors can earn a good return on investment by offering seller carry back financing, lease options, or rehabbing the house to sell for profit.

Bank owned real estate offers buyers the opportunity to save time and money. Since banks remove liens and judgments, buyers do not need to waste time negotiating with creditors and tax agencies. If foreclosed property owners refuse to vacate the premises, banks initiate eviction action. All of the time-consuming issues associated with buying real estate through foreclosure auctions are taken care of once the property is returned to the lender.

Several options are available for finding REO properties. Most of the major realtors such as Prudential, Countrywide, Bank of America, and Remax publish bank owned foreclosure lists on their company websites.

Countrywide / Bank of America participates in the Department of Housing and Urban Development Neighborhood Stabilization Program which offers grant money to qualified buyers who buy REO properties in areas hit hard by foreclosure.

REO homes can also be a good choice for first time home buyers. In addition to purchasing homes at substantially reduced prices, buyers can maximize savings by applying for NSP grants or participating in first time home buyer programs.

These are just a few options for buying real estate owned properties. The Internet offers an abundance of information about buying distressed real estate at discounted prices. Realtors often offer home buying seminars with a focus on the advantages of buying bank owned properties. By taking time to learn the pros and cons of investing in REO homes, buyers can learn how to further negotiate prices and obtain the best real estate financing to keep mortgage payments affordable.

Author Bio: Real estate investor, Simon Volkov provides informative articles to help buyers and investors understand what does reo mean and how to maximize profits when buying distressed real estate. Learn how to buy bank owned properties at discounted rates by visiting www.SimonVolkov.com.

Category: Real Estate
Keywords: what does reo mean, real estate owned, reo properties, bank owned homes, bank owned real estate