REO asset management involves management of REO properties. REO stands for Real Estate Owned, which refers to inventory of the real estate that returned to the portfolios of a bank or a lender like a mortgage company after an unsuccessful foreclosure auction process as there is no offer price that meets the minimum bid. After purchasing back the property, it is owned by the bank or the mortgage company as a non-performing asset.
Difference Between REO Property and Normal Property
There is a major difference between purchasing of a REO property compare to conventional homes sale. The REO property might not in well kept condition as those foreclosure house owners usually will not do any maintenance after their house is foreclosed. As such REO owners like banks will sell the house without any disclosure statement as they are lacking information on how the previous house owner has maintained it. Buyer has to accept it current condition but probably with a much lower price than that of ordinary market price. However buyer still owns the right and contingencies of inspection by negotiating this term with the bank REO asset management department.
As banks do not want to hold this kind of REO property, bank often try to sell it back to public as soon as possible. It may sell it by themselves through future auction or through real estate brokers. Some banks have a special REO asset management department to manage the sale and purchase matters and to set the bid and offer price of the REO properties.
Procedure on Buying A REO Property
Most big banks have their own dedicated department to do the REO asset management. Interested buyer will make an offer to the bank REO asset management department. Normally the REO asset manager will make a counteroffer and the potential buyer will again make another offer. The process going on until both of them have agreed to the selling price, terms and condition. They will then sign a sale and purchase agreement to validate the sale.
Why buy REO asset?
Real estate broker buy REO property with the thinking of buying it at price below market value and sell it at a much higher price and thus make huge quick profit from the price difference. Most financial institution who hold the REO property wanted to get rid of the REO asset as soon as possible as they want to unfreeze the money that are required to kept in capital reserve for a foreclosed property. Get rid of such REO property also reduces the burden of its REO asset management department.
While investor might get quick money if they can buy a REO property at low price and sell it at a price above market price in a very short period of time, most of the large banks usually have a very sophisticated and well established REO asset management system to maximize their profit or at least break even. REO asset manager often try to sell the REO property at the highest price possible. Interested buyer must be careful when making an offer to the REO asset management department, by scrutinize the price of the comparable properties on open market. Furthermore it is important to do a thorough inspection on the REO property condition to find out what need to be repaired after purchase. Failing to do so may cause the potential buyer to folk out additional money for repairing the house damage. While the return might be high, this is the risk that an interested investor or buyer must take into careful consideration.
