It’s a foreclosed, bank owned property (or REO) it must be a good deal! This is a comment that I hear all too often in today’s market but in actuality couldn’t be further from the truth.
Generally speaking yes, REO properties are priced below market value. This is because banks are not in the business of owning homes, but to lending money. REO properties hurt lenders financial balance sheets as they become a non-performing asset. For this reason lenders are usually motivated to sell these properties in a reasonably short period of time.
The second reason banks are motivated to sell sooner rather then later, is that in some neighborhoods, vacant homes are subject to vandalism and or general deterioration which will cost the bank more (either if they have to maintain the property or it will result in a lower sale price).
The third reason why REOs can be a good buying opportunity is that they tend to need some repairs. Thus, the lender must price the property to where a buyer/investor can come in, make the necessary repairs, and profit from the project.
Now the most critical aspect of purchasing and REO is – is it a good deal? Instead of getting excited because the property is an REO one needs to implore greater research to the potential purchase to make sure the deal is right.
First, conduct a comparable analysis of similar homes that have recently sold in the neighborhood. If the property can be purchased for less then those comparables, minus the cost of repairs plus a little extra for any unknowns, then the property MAY qualify as a good deal. The next analysis should be the area that the subject property is located in.
I have many years of experience in finding, negotiating, repairing, and selling foreclosed and REO properties. Feel free to call me at 773.244.9455 or email at Matt@PrairieShore.com.
