Secrets to Buying REO Listings
February 23, 2011
An REO listing is a real estate listing owned by a bank typically obtained by the bank via foreclosure on the previous owners. REO stands for “Real Estate Owned,” which if you ask me, is a really stupid name. Why not call these type of listings, “BORE” for Bank Owned Real Estate?” I suppose REO sounds more exciting than BORE now that I think of it.
There are a couple secrets to buying REO’s successfully. And they are worth understanding because foreclosures are the best deals on the market today. Anyone serious about buying for the lowest price should be focused on REO’s.
Secret 1: Don’t trust the MLS listing report
Just because MLS says the listing is Active and available doesn’t mean it really is. If you’re working with a Realtor and you are about to go view some REO listings do yourself and that Realtor a favor by insisting that they call each REO and verify that the REO is really active and available.
Quite often the REO listing agent received a contract already on the property, submitted it to the bank, received a verbal acceptance of the offer, and is simply waiting for the bank to sign the contract. The time between the contract being submitted and being signed by the bank is what we call “REO limbo.” Don’t get sucked into REO limbo! Request that your real estate agent takes the time to call each and every foreclosure that he or she plans to show you and verifies they are really available. You don’t want to waste your time and emotional energy going to see houses that are actually sold. And when a bank “verbally accepts” an offer it is as good as sold.
Secret 2: Offer more than full price if you really want the property
Most REO’s sell for full price or a bit higher. And there are often multiple offers on a property by the time you submit your offer. Most people understand at this point that REO’s are in high demand and usually receive multiple offers within a week to 30 days of list date. So there is intense competition for these listings. The secret is to put your emotions on the back-burner and stop assuming that you are not getting a good deal if you don’t negotiate down from the list price. In reality most REO’s are already priced FAR lower than comparable traditional sales. You will be getting a deal just by buying at full-price. This is why most short sales sit on the market for up to a year or more, while REO’s are gone within a month or two. REO’s are a good deal (usually, have your Realtor research property values) and you need to make a good offer if you want your offer to be chosen over the other competing offers.
Here is the key. Most people will offer full price and not a penny higher. It is not uncommon for there to be 5 full-price offers on the same REO. It’s the one smart buyer that offered $1,500 over full price that wins the bidding war. And what does $1,500 really matter on a $150,000 property mortgage? Not much. So don’t screw around and place low-ball offers or full-price offers if you have found a hot property. You’ll be kicking yourself when you see it sell for a thousand dollars more to someone else.
Secret 3: The early bird buyer gets the worm house
Move fast. Every savvy buyer and/or real estate investor now knows that foreclosures are the best deals out there. This means you will have fierce competition when you go looking to buy an REO property. If your Realtor emails you what appears to be your dream home on a Monday and you can’t go see it till the upcoming Sunday don’t be surprised if the listing is already sold by then. You’re buying a house not a gallon of milk. If you see a great home Monday try to go preview it that night or the next day. Yeah, I know you have a job. Again, you’re buying real estate here and you might need to bend your schedule if you want to beat the other buyers to the best deals. Yes, it is that serious.