Sacramento Real Estate Views

“REO? Foreclosure? They’re The Same, Right?”

Well, No They Aren’t!

As I’ve said before, I get many real estate related questions every week from people who are trying to sort out this market.  Admittedly, it’s a very complex thing.  Some markets are harder than others especially when you’re dealing with financial institutions.

Just a few short years ago, no one was worried about foreclosure, short sales, declining values or losing their incomes.  The market was good, property was appreciating and everything looked very rosy.  As Paul Harvey used to say,  “now you (we) know the REST of the story”.

Things will get better, they always do.  It’s the natural ebb and flow of life.  I hope it happens sooner than later.

What’s a Foreclosure?

Foreclosure is a legal process where the homeowners right to the property are terminated.  It’s a forced sale held on an assigned date usually held on the courthouse steps.  The opening bid for a foreclosed home usually includes the mortgage amount, attorney fees, accrued interest and any additional fees incurred during the process.

The downside:  When a foreclosure is purchased on the courthouse steps, you’re buying the property and inheriting all of the liens, taxes, any 2nd or 3rd mortgages and fees associated with the process.

Not such a good deal.  Additionally, you’ve got to have the cash up front.

What’s an REO?

REO stands for “real estate owned” or “bank owned”.  If the property doesn’t sell at the auction on the courthouse steps then the attorney for the bank buys it back.  The bank then passes the home off to an “asset manager” who then sends a “listing assignment” off to one of the Realtors or agents they have retained to get the property ready for market then sell.

The advantages of buying an REO are:

1.  REO properties come with a clear title.

2.  As such, they are mortgagable.

3.  They are generally “trashed out” and ready for market saving the buyer some money on clean up.

REO’s In The Sacramento Real Estate Market

There are many things to be aware of when purchasing a bank owned home.  A few concerns are:

1.  The seller, by law, isn’t required to disclose material facts about the property to the buyer.  They’ve never lived in it and usually don’t have a clue as to condition.  Get a professional home inspection.

2.  Other than an Agent Visual Inspection Disclosure, the listing agent knows nothing about the property to disclose to the buyer either.  Get a professional home inspection.

3.  REO’s sell for less, due to condition, than short sales and regular real estate.  That said, our market right now is very competitive with multiple offers on everything.

Don’t try to get a “good deal” if you want the property.

It’s not going to happen in a multiple offer situation and you’re wasting your time.

There are multiple offers because the amount of available homes for sale is low and the bank has priced it to drive the price up thus making it look like a good deal.  The entire Sacramento region right now is a good deal and if the “shadow inventory” that is said to be out there starts coming on the market by the first of June, there will be much more to choose from and prices will decline further.

4.  REO’s are “distressed properties”.  This means that before the borrower left the home, they may have materially damaged it.  Sewer lines could have been filled with concrete, rats and mice may have been let loose in the home when the borrowers were vacating, all water spickets may have been turned on, drains plugged and the house flooded.

You must be aware that there may be serious deficiencies with the house you’re interested in.

Only a small percentage of homes have been vandalized by the prior owner but  none the less, go into this with you

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Tags: bank owned, foreclosure, homes, Rocklin, sacramento, Sun City Roseville

This entry was posted on Friday, May 15th, 2009 at 5:39 am and is filed under Foreclosure Statistics, Real Estate Market Commentary, Your Questions Answered!. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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