Traditional Vs. Real Estate Owned Transactions
What Is Real Estate Owned (REO)?
Real Estate Owned (REO) is property owned by a lender, such as a bank, that has not been successfully sold at a foreclosure auction. REO properties can include detached houses, condominiums, townhomes, and land. A lender takes ownership of a foreclosed property when no bidder offers the amount it seeks to cover the loans.
What To Know
- Real estate owned (REO) is foreclosed-upon real estate in a lender’s portfolio.
- The properties may be in a lender’s portfolio, such as a bank or another lender, because the property could not be sold at a high enough price at a foreclosure auction.
- Banks then attempt to sell their REOs using a real estate agent or by listing the properties online.
- REOs are often sold at a discount by banks and other lenders.
Understanding Real Estate Owned (REO)
When a borrower defaults on his mortgage, the pre-foreclosure period often involves either a real estate short sale or a public auction. If neither goes through, the foreclosure process can end with the lender—a bank, for example—taking ownership of the property. Banks may attempt to sell real estate-owned properties in their portfolios without the help of real estate agents. When this is the case, banks often list their REO properties online, making many REO listings readily available on bank websites. A bank’s loan officers may also notify customers looking for homes about the REO properties in its portfolio.
What’s The Difference?
Defaulted properties are a sad fact of any real estate market. Mortgage foreclosures are a multiple-step process, presenting various opportunities for buyers.
When a foreclosure sale is not successful, the lender assumes ownership and the property is now called real estate owned, or simply REO. If you are interested in purchasing an REO property, it’s important to understand several distinctions between REOs and traditional transactions, outlined below:
Traditional Transactions. With knowing that information, let’s talk about what the major differences are between REO and Traditional transactions.
- Seller is a homeowner and not a lender
- The agent is chosen by the seller
- The occupant leaves before the home before it is closed, REO can be in limbo for a while
- The property condition for traditional may include upgrades while REO may be at risk for vandalism
- Offers for traditional is to create a win-win for the buyer and seller while REO might be risky for both parties
As you can see traditional transactions are probably a safer bet while REO can be risky but sometimes yield a greater reward for buyers. Each of these factors has important implications for buyers. Before proceeding, it’s best to work with an Accredited Buyer’s Representative who can help you understand your options and decide whether an REO purchase is right for you.