Buzz
Purchasing a home today feels like an uphill battle. While lenders once offered 3% mortgages without hesitation, current interest rates have climbed to approximately 7%. At the same time, housing costs have skyrocketed, with the national median price now slightly above $430,000—requiring a six-figure salary to afford a home in nearly half of the country.
If soaring home prices in your area are causing stress, consider exploring post-foreclosure homes, also referred to as real estate owned (REO) properties.
How purchasing a real estate owned (REO) property can help you save
A real estate-owned (REO) property is one that a bank or lender has foreclosed on, which didn’t sell during an auction or as a short sale. Consequently, the bank owns the property and likely wants to offload it quickly. Since banks aren’t in the business of managing or maintaining real estate, holding onto these properties increases their financial exposure.
This situation often turns the bank into a highly motivated seller, which works in your favor: REO homes are frequently priced competitively, offering what’s known as the REO discount. This discount can sometimes reach up to 41% below market value. While you might not save that much, and you won’t find a fully renovated luxury home at a steal, this route can still lead to significant savings.
One important consideration with REO properties is that they are usually sold as-is. If the previous owner neglected maintenance or repairs, you could face costly fixes. However, banks typically clear any liens or outstanding debts, such as unpaid property taxes, to ensure a smooth sale. This means that if you’re willing to take on a property that may need work, purchasing an REO home can save you a substantial amount of money.
How to locate REO listings
Discovering REO properties requires some effort, as there’s no single platform listing them all. However, there are several common methods to find these homes:
Bank websites. Many banks have dedicated REO departments and host websites showcasing the REO properties they aim to sell. For instance, Bank of America provides a list of their properties here.
The Multiple Listing Service (MLS). The MLS, utilized by real estate professionals, also includes REO and foreclosed property listings. Some banks directly post their REO properties on the MLS.
Foreclosure databases. Since every REO property begins as a foreclosure, monitoring unsold foreclosures can position you to secure a desirable REO listing. Tools like RealtyTrac, Auction.com, or Foreclosures.com can help track foreclosures. Additionally, platforms like Zillow or Trulia list foreclosed properties, allowing you to track them and identify potential REO opportunities.
Federal databases. The Federal government, which issues numerous home loans, also ends up with REO properties. These are listed on platforms such as HomePath (Fannie Mae), HomeSteps (Freddie Mac), or HUD Homestore (FHA-owned homes).
An experienced realtor. If you’re focusing on REO homes, it’s wise to work with a local real estate professional experienced in REO transactions and holding a short sales and foreclosure (SFR) certification from the National Association of Realtors (NAR). The NAR offers a searchable database to help you locate certified agents in your area. Additionally, securing pre-approved financing is crucial, as banks prefer buyers who are ready to act quickly to remove REO properties from their portfolios.
