(Real Estate Owned) REO refers to properties that have been foreclosed by a bank. If a property is not sold at a foreclosure sale, the bank may contract an REO asset management company in order to sell the home at market value to a real estate investor.
Banks are wary of having REO properties on their books for long since unsold homes add to risk management for lending institutions. The goal for banks is to put REO properties back on the market as quickly as possible after the foreclosure process has ended. In order to accomplish this, qualified real estate sales professionals are required to sell properties quickly and at a good price.
REO asset management companies also manage the maintenance and cleanout of foreclosed properties. Services provided include trash disposal, landscaping, field inspections, repairs, winterizing, and monthly inspection reports.
Selling REO Properties
When looking for a qualified real estate professional, asset management companies will check to see if the agent is listed on their management software. These platforms feature the agent’s experience and credentials.
They also have built in scorecards that track agent performance and their past successes. It is essential that an agent be responsive to the needs of an asset manager. This means they must maintain open lines of communication and adhere to an asset manager’s compliance system.
After an REO property is assigned to an agent, the sales process is overseen by the asset management company. Proactive agents are usually the most successful. They will contact all utility companies, as well as city and county offices to ensure the home is free and clear of any outstanding liens. Since REO properties often have numerous liens and code violations, agents must resolve these debts before the property goes under contract.
The process for becoming an asset management agent is as follows:
- Complete a brokerage training course to obtain a broker’s license. Courses will instruct agents on how to determine a broker price opinion, which assesses the property’s market value and serves as a source of marketing for potential investors.
- Network with area banks and lending companies to offer REO services and demonstrate the skills needed to sell foreclosed property quickly.
- Set and maintain lower fees by researching the fees of local asset management companies in the area to ensure a competitive advantage over other REO agents.
- Use multiple listing service software that lists available real estate and identifies foreclosed homes
Buying REO vs. Traditional Real Estate
The differences between buying an REO property and a traditional real estate transaction is that negotiating the final price of a foreclosed home can take longer since the process requires multiple levels of approval.
The first step is for the bank, and in some cases the investor who owns the property, to approve the offer. REO properties are usually set at slightly below market value in order to sell the property quickly, therefore a fair ands reasonable offer should be submitted.
Several items should be considered when buying an REO Property:
- Assessing the condition of the property. Oftentimes, the bank has no record of repairs or damage to a foreclosed home, therefore, they may be unable to assess the true condition of the property.
- Conducting a home inspection. Before purchasing an REO property, buyers are encouraged to conduct a professional home inspection of the property.
- Placing a good faith deposit. Several expenses may arise before and after an offer to buy an REO property, therefore, a good faith deposit can be used to show the buyer has a genuine interest in the property and will indicate how much money they may deposit as a down payment.
- Scheduling a closing date. The buyer can coordinate a closing date with the agent by addressing and resolving any title issues that may arise during the closing process. This will also allow the buyer to adequately schedule moving services, utilities and deliveries.
Budgeting for an REO Property
Before researching REO properties, a buyer should decide how much they can afford to spend on a foreclosed home. Generally, the costs of the mortgage, property taxes and insurance should be no more than 36% of the buyer’s total income before taxes and other deductions. Also, when deciding to make an offer, it pays to be prequalified beforehand. The prequalification process involves a prospective borrower providing financial information, such as work history and funds available for a down payment, in order for the bank to assess how much they are willing to lend the buyer. Also, a prequalified status demonstrates that the buyer is serious about purchasing an REO property, which is more attractive to a seller.
According to Christian Zarif, an REO agent with BHG Kansas City Homes in Kansas, “Typically, a 203(k) loan is going to be your best bet when dealing with a property that needs extensive rehab [i.e., above $10,000 to $15,000]. The key is working with an approved lender that has experience with 203(k) loans. In addition to the typical purchase loan requirements, additional details will need to be ironed out to get contractor estimates from approved providers. This is where a local lender could play a critical role in the process, as they typically have access to contractors in your area to assist.”
Finding an REO Property
REO properties are often listed in local newspapers and online real estate websites, as well as bank and government websites. By searching for REO properties or foreclosures, buyers will find a variety of online property sites and listings. Auctions are another way to find REO properties. Public foreclosure auctions take place when the bank assumes ownership of a property. If the property is not sold at auction, it will be listed with an agent specialized in REO properties. can occur when ownership of the property officially transitions to the bank. If the property is not sold during the public foreclosure auction, the property is then listed with a real estate agent. Auction companies often sell properties from banks and investors, either in-person or online. Public auctions require quick thinking since oftentimes buyers are not allowed to inspect the property beforehand. Prior to attending an auction, a buyer should research the property and set a budget.
The following is a list of the top REO auction websites in the United States:
- Auction – A leading online real estate marketplace focused on the sale of bank-owned and foreclosure properties, as well as live trustee foreclosure sales.
- Auction Network – An international online real estate marketplace that specializes residential and commercial properties, as well as farms and ranches.
- Bid4assets – A national online real estate marketplace that specializes in below market value real estate and personal property for private investors and government agencies.
- Foreclosure – A national online real estate marketplace that specializes in distressed properties with over 1.8 million national foreclosure, pre-foreclosure, bankruptcy and tax lien property listings.
- Hubzu – An online real estate marketplace that offers auctions, traditional sales, short sale and bank-owned properties.
- Hudson and Marshall – A national online real estate marketplace with over $5 billion in real estate sales in the last five years.
- Landwatch – A national online real estate marketplace that specializes in investment or recreation properties, land for development, cabins, second homes, farms, hunting grounds and large acreages.
- Realtybid – A national online real estate marketplace that specializes in listings from real estate agents, builders and major corporations.
- Realtytrac – A national online real estate marketplace with over a million foreclosures listings.
- Treasury – An online real estate marketplace of seized and forfeited properties in the U.S. and Puerto Rico. Auctions are free and public.
- Williams Auction – An international online real estate marketplace with more than $10 billion in real estate sales in the U.S., Puerto Rico, Central America and Europe.
- Xome – A national online real estate marketplace that specializes in technology and data enhanced solutions for buyers, sellers, real estate agents and mortgage loan servicers.
Major Asset Management Companies
The following is a list of the top asset management companies in the United States:
- Altisource – National REO asset management company.
- Archon Group – National REO asset management company.
- Bankers Asset Management – National REO asset management services.
- Derrick REO Services – REO asset management company that specializes in REO management, property preservation, broker price opinions, and housing foreclosures in Pennsylvania.
- Executive Asset Management – REO asset management services in the southeastern states.
- Field Asset Services – REO asset management services.
- Green River Capital – REO asset management company based in Utah.
- Keystone Asset Management – National REO asset management that specializes in foreclosure liquidation.
- Midland Loan Services (PNC Bank) – National REO asset management services.
- NPR Capital Asset Management – National REO asset management company.
- Orix Asset Management Group – National commercial REO asset management company.
- Precision Asset Management – National REO asset management company.
- REO Nationwide – National REO asset management company.
- Specialized Asset Management – National REO asset marketing and management company that provides services to mortgage lenders, servicers, and investors.
- Trax Financial – REO asset management company that specializes in property preservation, REO and loss share, bank equity recapitalization, and residential and commercial loan servicing.
- TREO – National REO asset management and marketing network.
- TriMont Real Estate Advisors – National REO asset management company.