REOs are often considered to be fabulous starter homes because the sales prices for these properties is generally lower than that of a similar non-REO property. And since the market may soon be flooded with them, there will will be plenty of opportunity.
But, you should know there can be risks associated with this “great deal” you are getting. When considering your REO purchase, make sure you have access to the right people who will guide you in the inspection process.
You will need a Realtor, who can protect your interests and make sure you get the best deal possible. Your Realtor will be able to generate reports for you showing comparable sales prices which will enable you to assess whether the asking price for the REO you are considering is appropriate. There are some statistics that show the average price of an REO is 15 – 30 percent lower of comparable sales prices. However, there are REASONS for this.
REOs are sold AS-IS. This means that what you see is what you get. You will need a qualified home inspector to guide you through each step of the REO purchase process. Only a qualified inspector will be able to reveal latent flaws or issues that you will need to consider before you purchase the REO. You will need to factor in the costs of potentially repairing, replacing or rehabilitating the necessary sections of the property into the price you will be paying.
One other thing is that the Seller (the bank that owns the property) acquired the property through foreclosure, has no prior knowledge of the property history and is therefore exempt from providing the usual seller disclosures. The full burden of proof is on the buyer’s shoulders.
So – if you’ve decided to make a go of one of these, be particularly attuned to the following elements – they will give you an awareness of what you are getting into and will also make you feel more educated during the process. Of course, these elements are generalizations, but important nonetheless.
1. It’s common that the services are off at the property so when inspectors show up, they cannot do a full inspection because of a lack of water or gas or electricity. Be sure to verify that the services are on before the inspection to avoid wasting a visit to the site and paying for an inspector to return another day.
2. Poorly maintained and deteriorated properties are found commonly. This is usually because the previous owners had run out of money and had no choice but to allow their property to go into a state of disrepair.
3. Sabotage and vandalism to the property are found many times. It is common to find holes deliberately made in the walls, torn up carpet, damaged kitchen cabinets and appliances, broken windows, doors, etc. Additionally toilets, garbage disposals, drains and sewer lines have been found to be deliberately clogged with concrete, gravel and other debris.
4. Components have been removed from the property. Costly items such as light fixtures, appliances, toilets, cabinets, decorative tiles, water heaters, air conditioning systems and pool equipment are taken. Copper water pipes and electric wiring have been stripped out of houses, apparently to sell for scrap.
5. Houses left vacant create special issues. Faucets in sinks, tubs and showers can become clogged with rust flakes and debris restricting the flow of water. Also, the rubber washers and seals in unused faucets tend to dry out and crack, so they often leak when turned on after sitting for extended periods of time. Sewer lines can clog soon after a family moves in because the hair, debris, toilet tissue and roots in the line that normally remain soft due to the daily flow of water through the drainpipes become hard and dry from non-use which can cause slow draining and clogs when they are put back into service. Mold also is a common problem found in these homes.
If you’re looking at these kinds of properties and have questions, we’re happy to answer them at firstname.lastname@example.org