Defining REO Properties

Defining REO Properties

REO properties have been increasing in the real estate world.  This term had been popular in the industry for quite a while now. There are two questions that we should be asking ourselves when it comes to these types of properties. What is the meaning of R.E.O.? and What are the things we need to know about this term?

First, REO means Real Estate Owned Property. As defined by Investopedia, it is a property owned by a lender-usually a bank, government agency or government insurer- after an unsuccessful sale at a foreclosure auction.

The property undergoes certain processes before it becomes an REO. “As soon as a property goes into a distressed status (the borrower/home owner misses mortgage payments) the beneficiary will want to determine the amount of equity that the property has. A popular method to determine the equity is to obtain a Broker’s Price Opinion (BPO) or order an appraisal. Based on the amount of equity that is determined from the BPO, the bank will decide whether to allow a short sale (only if requested by the homeowner). If no short sale is requested by the home owner, the beneficiary will continue the foreclosure process. If the beneficiary is unable to sell the property through a short sale or at a foreclosure auction it will now become an REO property” (Wikipedia, 2013).

After becoming an REO property the lender, or what we call now the beneficiary, will try to sell the property. It could be on its own or with the help of an asset manager and  broker.  Real Estate investors would normally purchase this type of property due to lower acquisition cost because of discounts and the status of the property.

Before buying an REO property, one should know of the following: the budget needed, the market in which the property belongs, the status of the home, and the state of readiness of the buyer.  Considering these factors would help you quite a bit in making wiser decisions on these types of purchases.


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