Yes, absolutely, REO "deals" can be had. Here's something else you should consider as well: Auctions. According to a recent Fitch Ratings Special Report on REOs, to get properties off their books and reduce long-term carrying costs six out of 10 loan servicers are resorting to auctioning off their REOs now, despite evidence they will likely see bigger losses than if the REOs are marketed and sold in a more traditional fashion. The report goes on to state, "the use of auctions will continue to increase as servicers are faced with growing REO inventories and increasing loss severities." Although losses are typically higher taking an up-front loss at an auction is preferable to taking the time to market a property, the report concluded. This is especially true in a market that still has not found a bottom. From a buyer perspective, Auctions provide a clean, fast transaction, which leads me to my next point ....
Your best bet is to start working with a licensed Realtor or Mortgage Banker for identifying a distressed property. Realtors will have access to the MLS listing the Short Sale and Foreclosures, while a Mortgage Banker (and some Realtors) will have access to the Bank's own databases of REOs. Iâ€™m both a Realtor and Mortgage Banker.
However, while you might identify a Rose out in the REO garden, you should be fully aware of where the thorns are located that the media rarely covers when they are hyping these opportunities, as follows:
-- The process of buying a Short Sale/Foreclosure/REO (SS/F/REO) home is much slower (60+ days), and greater-than-normal documentation can be required (depending on which of the three options we are talking about), as compared to buying from a private seller.
-- Most banks are notorious for NOT returning phone calls and obtaining status of the transaction is like shouting into a valley and not even hearing your own echo. In all fairness, Banks are inundated right now.
-- Only about 33%-50% of deals are actually accepted and close.
-- Water and/or electricity can be turned off, which makes it very difficult to confirm condition. Thereâ€™s also not much effort to clean up or repair SS/F/REOs. They can be in pretty bad shape. Be careful of SS/F/REOs priced suspiciously low as the completed cost of the repairs may exceed the market value of the home after the repairs are done. Definitely consider finding a contractor you can trust and take her/him with you when you are viewing SS/F/REOs. True, some foreclosures are in better shape than others, and just when the excitement builds you realize you are going to be up against a 60-day bout of the Bankâ€™s â€œsilent treatment.â€ This is why many buyers â€œjust say noâ€ to SS/F/REOs, opting for a condition-verifiable, MLS listed home that is competitively priced.
If your stomach isnâ€™t queasy and you want to move forward buying one of these properties I would suggest that you also ask your friends and family for references of at least three people that have actually run the SS/F/REOs gauntlet.
On the other hand, if you are thinking, â€œjust say noâ€ and would like to find a condition-verifiable home that is competitively priced, or want a partner to perform research prior to an auction please give me a ring.
One final note on the 20% down: Depending on your financial situation and the eventual deal that is pulled together, from a purely financial standpoint, it is better to keep as much of your money working for you in an interest-bearing account as you can. If you would like to read more about how to safely manage your home equity shoot me a short email and I'll send you the 4-page document that provides a "do-the-analysis" of why this is so.
Steven A. Ornellas, GRI, ABR, e-PRO, CMPS, RE Masters, MBA
REALTORÂ® / Mortgage Banker-Broker / Certified Mortgage Planning Specialist
Steven Anthony Real Estate & Financial Services
Expect Excellence. Get What You Expect.â„¢