What Exactly Is an REO?

   Today we are going to be focusing on REO’s. What are they? Where do they come from? Who buys them?  Most Real Estate Professionals know that REO means “Bank Owned” or “Real Estate Owned” & if they don’t, maybe it’s time to find a new Agent.  While discussing REO’s in everyday conversation with the general public, I have come across many-a-deer caught in luminously blinding headlights when those 3 simple letters get tossed around. So, I think it’s time to set the record straight and explore the deeper meaning of the ever so mystifying jumble of  “R” + two vowels we call REO. The Wikipedia, Free Online Encyclopedia’s definition of a REO or Real Estate Owned is “a class of property owned by a lender, typically a bank, after an unsuccessful sale at a foreclosure auction. A bank will typically set the opening bid at a foreclosure auction for at least the outstanding loan amount. If there are no bidders that are interested, then the bank will legally repossess the property. As soon as the bank repossess the property, it is listed on their books as REO – Real Estate Owned – and is categorized as an asset (non-performing). As soon as a property goes into a distressed status (the borrower/home owner misses mortgage payments) the bank will want to determine the amount of equity that the property has. A popular method to determine the equity is to obtain a Broker Price Opinion BPO or order an appraisal. Based on the amount of equity that is determined from the BPO, the bank will decide to try for a short sale or to allow it to go through the foreclosure process. If the bank is able to sell the property through a short sale or at a foreclosure auction, then the property will not become a REO property. After repossession and the property becomes classified as REO, the bank will go through the process of trying to sell the property on its own. It will remove some of the liens and other expenses on the home and try to resell it to the public, either through future auctions or direct marketing through a real estate broker (REALTOR). Generally speaking, bank REO properties are in poor shape in terms of repairs and maintenance; however, real estate investors will often go after these properties as banks are not in the business of owning homes and so, in some cases, the low price can more than compensate for the condition of the property. Once a property is REO, the bank or lender will try to get rid of the property by either selling it directly themselves or through an established broker. Many larger banks such as Bank of America and Wells Fargo have REO/asset management departments that will field bids and offers, oversee upkeep and handle sales. The majority of REO properties that are on the open market are listed in MLS by the broker/REALTOR that performed the BPO.” So, now what we know what an REO is, and that it is actually a positive opportunity for someone looking to make a purchase, we can discuss how REO’s relate to Commercial Real Estate. Just like in Residential Real Estate, REO’s inhabit the Commercial Real Estate world as well. In the Residential world, if a homeowner can’t pay their mortgage, their home usually goes back to the lender or bank where the loan originated from. After the failed auction and repossession take place, the bank has an REO on their hands. This same scenario happens frequently in the Commercial Real Estate world with buildings, land, and anything that isn’t owned outright. A building owner defaults on his or her loan payments, the building goes back to the bank, the bank auctions the property off for the outstanding loan amount, nobody bids, the bank repo’s the property, and it is then labeled an REO. This same pattern is true for land owners. Many times the bank wants to quickly rid themselves of the property. So, for a buyer, this can be a very savvy time to stumble across a deal that might otherwise be nonexistent in a different economic climate. Fennell and Associates Commercial Real Estate Team has worked closely with many banks & buyers executing many successful REO transactions. Ron Boles, a Commercial Agent here at Fennell and Associates, currently has 3 REO properties listed for sale. Click the link below to view our inventory. www.fennellandassociates.com]]>