REO’s – Everything you ever wanted to know. Part 1 – What is a REO?

admin May 15th

About 2 1/2 years ago the buzz word in real estate was “Short Sales.” These were homes where, based on the market, the owners were forced to sell their home for less money than they owed on the mortgage. Our real estate here in Vancouver Washington was late to fall in to this market but it came none the less. These homes were being sold for a variety of reasons often times including job loss, divorce, health issues, or other financial hardships. Short sale listings flooded the market seemingly overnight and buyers started to jump into the market hoping to steal their dream home at a huge discount.

What is a REO?Then reality hit. At the time, banks weren’t prepared to negotiate the huge load of transactions that were piling up and many of these offers died while in process. The average transaction took 45+ days to negotiate with the bank before they ever went to title. Some took even longer. Much longer. I had a short sale listing in the Felida area of Vancouver Washington in which we took the offer on August 13, 2009 and didn’t receive final approval from the bank until December 29, 2009. As word of these prolonged negotiation periods leaked out, buyers (and AGENTS!) began to steer clear of the dreaded short sale. Owner/sellers still couldn’t afford to make payments and the banks started to foreclose on these homes.

Fast forward to today’s market. Now, the buzz word in the real estate market is “REO.” What is a REO? R.E.O. is an acronym for Real Estate Owned. It simply means that it is real property that is owned by the bank. REO’s are the homes that the bank foreclosed on and are now being listed for sale on the open real estate market.

There is a large amount of liability and risk for a bank to own real property. The bank has to pay to have the home secured, repaired and maintained. They have to insure it. They have to pay the taxes. You get the idea. Without the proper management and care, a vacant home has a way of turning into a condemned property fairly quickly. If that isn’t enough incentive to sell the house quickly, then there is also the business side of the equation. A mortgage bank’s ability to borrow money from the feds and other banks and then loan it out at a profit is severely compromised if they have too many REO’s on their books. The banks in this situation are very motivated sellers!