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Buying A Bank-Owned Home? Consider These Debunked Myths
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One good thing that came out of the housing recession is today’s opportunity for consumers to more easily purchase bank-owned homes or real estate owned (REO) properties.
However, many traditionally minded consumers remain in the dark when it comes to understanding what it means to purchase REO properties, keeping this as one of the most under-recognized opportunities to discover affordable homes.
Let’s answer two of the most basic questions: What are REO properties, and where can you find them? REO properties are bank-owned after foreclosure. They are generally listed on the multiple listing service (MLS) and accessed via traditional brokerages or on online auction marketplaces.
Banks and loan servicers are generally motivated to unload these homes much to the benefit of buyers seeking a broader pool of affordable real estate in today’s competitive seller’s market.
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Myth 1: You need to be a professional investor with an inside scoop to find and purchase REO properties. Years ago, finding a bank-owned property wasn’t easy. The general impression was that the best opportunities were immediately picked up by the pros who were able to pay cash for the home. Individuals looking for deals had to scour county records looking for properties in default. This changed when the housing crisis hit. Thousands of homes were foreclosed upon, REO inventory increased dramatically and the landscape of REO shifted.
The timing of the crisis corresponded with a broad digital migration that was taking shape for several years. The rise in tech-enabled services provided a huge opportunity for sellers looking to liquidate REO properties, resulting in the emergence of online REO auction platforms that opened access directly from the source. Today, consumer-friendly features, including financing contingencies, are rapidly being incorporated into online REO auction platforms that benefit traditional buyers and individual investors; pros no longer have a major advantage. The playing field is becoming more level.
Myth 2: You can’t inspect properties or obtain detailed property reports until after closing. In some cases, consumers can actually pre-inspect REO properties before putting in an offer or bidding in an online auction. Prospective buyers can also work with the bank in possession of the property to get access to property reports with up-to-date disclosures.
Myth 3: You need to present an “all-cash” offer to purchase an REO home. While cash was king in the past, consumers can now make their offers contingent on financing. In fact, the government now offers special loan programs for buyers who need extra cash to renovate purchased REO homes after closing. These are called 203(k) programs, and they bundle the home purchase price and renovation costs into a single mortgage.
In the traditional retail real estate market, home prices around the country may be daunting. With greater access, transparency into the process and new financing options, interested consumers should get educated on the REO market and to determine if it is the right avenue for them.