Home buyers are often looking for a great deal on a home. Whether renovating, investing, or buying their first home, those in the real estate market recognize that REOs and foreclosures offer the opportunity to get a fabulous shot at a home. However, they are not the same type of property. Real estate is property that the bank has seized from a financially disabled owner and chose not to sell through foreclosure or failed to find a buyer at a foreclosure auction. The lender then sells the house as its new owner outside of the foreclosure process. A foreclosure, on the other hand, is a property that is offered for sale to pay off the balance owed by the owner. Each state handles foreclosure sales uniquely, but these properties are generally sold at auction to the entity that makes the highest bid. The initial offer at a foreclosure auction includes everything that must be paid for the property, the increased interest, and the attorney’s bill associated with the sale.
Distressed homeowners often face other types of financial challenges beyond their inability to pay their mortgages. Often they will increase the amount of debt they have on the house in an attempt to fix their problems. They also frequently owe back taxes on the house by the time it ends up in foreclosure. For this reason, the opening bid at a foreclosure auction is sometimes more than the property is worth, resulting in many auctions failing to attract a winning bidder. Banks are then forced to convert the property into real estate and sell it later. REO properties typically fetch up to 20 percent of their current market value. Before buying, buyers should examine the property and similar properties in the district to ensure they are getting a low price.
An REO sale is considered one of the safest types of real estate transactions, as the seller is a bank, not an individual. Clearly different from foreclosures, REO homes do not carry the added burden of liens or back taxes that the new owner will need to pay. In addition, buyers can view REO properties before purchasing, negotiate the lowest price to accommodate the need for repairs, and still get the home for a bargain price in many situations. On the other hand, a foreclosure purchase can sometimes be a sound investment, because the current owner of the home may wish to reside in the home as a tenant. This means that the house comes with tenants, allowing its new owner to start making money right away. By buying a foreclosure at auction, the buyer will conclude that the bank holding the loan on the property is more than eager to speed up the financing process to offload the burden of the home. If a house doesn’t have a lot of debt against it, buying it through a foreclosure auction presents the best chance of getting a good deal. The key is to research how much is owed on the house before you bid at auction if you hope to find a good deal.