What Does REO Mean?

As a Real Estate Broker I often get asked “what does REO mean?”  REO is an acronym for real estate owned and is used in the context of foreclosed properties owned by the lender or bank.  Typically, after foreclosure, the bank will list the property for sale.  It’s cost prohibitive for banks to hold a vacant house for very long.  As of this writing, the total number of REOs for sale in Redding and all of Shasta County is 235 houses.  So it’s fair to say, if you’re looking for REO houses, there a lot to choose from in Redding and the surrounding areas.

Just because a property is bank owned does not automatically mean the property is a bargain.  It’s not uncommon for banks to charge a higher price for their REO inventory as they must recoup financial losses from unpaid mortgage payments and the cost of foreclosing and possibly paying back taxes etc.  Further, people losing their home may not have kept up with routine maintenance, or in some cases, may have intentionally damaged the property and or removed appliances, plumbing and lighting fixtures.  However, this does not mean you can’t find a great deal on a foreclosed house.  There’s no such thing as the last good deal in real estate, great opportunities happen almost every day.  The trick to finding great real estate deals is to know about them before anyone else.  The analogy I like to uses is, how long does a $100.00 bill last on the floor at K-mart?  Less than a minute.  A great REO property is worth a lot more than finding a $100.00 bill.  Therefore, get the REO list before others and you’ll undoubtedly find some real gems.

Finding new REO listings the same day they’re posted to the Shasta County MLS is easy.  Our home page at www.ParsonsGroup.com has a link to our Real Estate Hot Sheet.  The Real Estate Hot Sheet is updated daily and every new listing in Shasta County is on the list.  Just watch the list and you’ll know about new listings before most other buyers.  We also have our Listing Alert Service which sends you the new listings matching your search criteria such as price, location and square footage.  You can choose to receive the notification real time by email, instant messenger, text message or telephone voice notification.

Okay, you’ve found a few houses of interest, now what.  As fast as you can, you should go and look at the houses in person.   Most REO houses are vacant and I can open up the house with my lock box card.   It’s very important to get inside to check the condition.  As you may already know, banks offer foreclosed houses for sale in their “as-is” condition.  Typically, the banks are not willing to make any repairs and they don’t offer any disclosures regarding property defects.  This means, buyer beware!  When I show REO properties, some major defects are often visible right away (I was a contractor for the last 25 years of my life.)  Other defects are more subtle or may not be visible at all until you go in the attic or sub-area of the house.

When you think you have found an REO bargain the next step is to get control of the property so you can do your inspections.  Buyers often make the mistake of attempting to inspect the property first and then write an offer.  As this may seem logical at first, the plan can back fire when a shrewd investor finds the property the same time you do.  The shrewd investor knows to get an offer accepted by the bank and then fully inspect the house.  A good purchase contract has provisions for the buyer to inspect the property during escrow.  If, after completing the inspections the buyer decides not to proceed with the purchase, she simply cancels the contract.  What the investor has done in this scenario is contracted for the right but not the obligation to purchase the house.  Imagine poor Joe, the newbie REO investor; he calls his brother-in-law and they spend all day checking out an REO house.  After the property meets Joe’s  approval he decides to write an offer.  Sorry, it’s too late!  Ms. shrewd investor has already taken the property off the market and will be doing her inspections next Thursday.

Like many things in life, timing is everything, you must know about all new listings as soon as possible.  There are many more strategies and tips you can use to find houses and then negotiate the lowest possible price.  Next you must know how to write offers banks and sellers absolutely hate but are afraid to reject.  I will share my thoughts on those topics in future posts.  Also watch for an upcoming post on Short Sales – The Greatest Opportunity of a Lifetime.

Until next time…

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