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What Is the Difference Between REO's and Foreclosures?

In Texas, the first Tuesday of every month, foreclosure auctions are held on the steps of each county courthouse. Mortgage lenders, mortgage insurers and taxing authorities offer foreclosed properties to the highest bidder. Many of these properties are offered at the total amount owed. Some lenders will start the auctions at a discounted price, and then may, or may not bid on the property themselves. While lists of the properties up for foreclosure are usually posted in advance, it can be almost impossible to know what you are buying. Since these homes are not available for inspection before the auction, a prospective bidder must rely on a drive-by inspection, and other research to avoid hidden pitfalls. IRS liens may exist that need to be paid off by the new owner. Also, many foreclosure homes have been badly damaged or neglected by the previous owners or tenants. For these reasons, many buyers prefer to purchase REO's.

REO's (Real Estate Owned) are foreclosed properties that a lender or mortgage insurer has bought back at auction and offered for sale to individuals or investors. All the "foreclosure" homes being sold through the MLS are more correctly described as REO's. While many real estate brokers and websites may claim they have "insider lists" of foreclosure properties, the reality is that nearly all foreclosed homes are marketed through the local MLS system. Since REO's are available to all Realtors who are MLS members, you can select the buyer's broker who is best qualified to assist you. No real estate company or broker has an "insider advantage".

REO properties can offer substantial discounts to buyers compared to normal resale homes. Many institutions are willing to bargain price properties in order to achieve short marketing times. This can vary among different propereties, and it is not unthinkable to see an REO priced at, or above market prices. REO Sellers or Asset Managers, are different in many respects from typical Homeowner/Sellers. They usually handle large portfolios of properties and do not have detailed market knowledge of particular neighborhoods or individual homes. They depend on BPO's (Broker Price Opinions) to help determine the appropriate listing price. They have no emotional stake in the property and all transactions are business decisions. They work normal business hours and deal with a large volume of paperwork on a daily basis. Negotiations and repair requests usually take longer than with a homeowner because of these constraints. There is normally a "bottom line" on every property, which can change based on market time and condition issues.

 

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