You’ve been driving by that cute bungalow for years, but didn’t think you could afford the neighborhood. But then, it went into foreclosure and didn’t sell at auction, so now it’s listed as an REO, or real estate-owned property. Could you finally have a chance to make it yours? Not so fast: You need an REO buyer’s agent.
Before you start shopping for distressed properties, you should know what you’re getting into. Even experienced homebuyers who’ve already bought and sold a few homes will find the process much different, and they will also need an agent who specializes in REO sales.
What’s an REO home?
A “real estate owned,” or REO, home is one that’s owned by a bank. The owner either forfeited it to the bank, or the house went to foreclosure auction and the house didn’t sell. Whatever the case, now the house belongs to the bank.
Buying a bank-owned home isn’t the same as buying a house from a private homeowner. In a normal home sale, if the home inspection finds issues, you can negotiate with the seller. But with an REO sale, you generally won’t get an additional discount on the price or to ask for repairs.
Typically, banks build the home’s condition into their asking price, which is why these sales can be cheaper than a non-distressed house in the same neighborhood. It’s rare for banks to bother fixing up an REO home. They’ve already lost money in the foreclosure process, and are trying to minimize further losses.
While you can still get an inspection on an REO home, your choices post-inspection are to either proceed with the sale or walk away. “The inspection period varies from seven to fifteen days in Florida,” says Cosmo Spellings, an experienced Florida-based agent who often works with REO buyers. You need an agent who’s on top of the bank’s timeline.
If you’re handy, and you don’t mind putting some elbow grease into the property, you can get a great deal.
Why do you need an REO buyer’s agent?
These sales are different from normal sales. In a hot housing market, many banks send foreclosures straight to auction, hoping to start a bidding war. Timelines can stretch longer than a typical close cycle, and financing might not be the same, either.
One of the first things an experienced REO specialist should ask is how you plan on financing the purchase. A home that goes to auction is often a cash-only sale, which may be outside your reach. If you plan on financing, Spellings notes that “my job as their agent is to make sure that the financing that they’re planning on using fits the house.”
Are you planning on using an FHA 203(k) rehab loan and rolling the costs of repairs into the financing? WIll it be an investment property, or will you live in it after it’s fixed up? The answers to those questions could restrict the homes available for you to purchase.
Spellings says, “Every bank is different, so every bank has a certain set of guidelines that they’re going to follow.” When you’re shopping around for an REO specialist, you’ll want to find one who’s worked with several local banks. A good REO buyer’s agent can help you accurately estimate the timing, figure out how much to offer, and determine how much you’ll need to set aside for any repairs.
The difference between an REO listing agent and an REO buyer’s agent
An REO listing agent works with lenders to sell bank-owned homes— so they are usually listing a lot of homes at once. Depending on the area, they could represent dozens of properties, possibly more than 100. Even if they wanted to also work as an REO buyer’s agent, they probably don’t have the time.
An REO buyer’s agent represents a buyer interested in purchasing a bank-owned home — this is the person you need to find to help you with your home purchase.
How do you find a qualified REO buyer’s agent?
Before you even shop for homes, you need to shop for an REO buyer’s agent. Here are four tips for finding the right one to handle your purchase.
1. Get a referral
Word-of-mouth is one of the best ways to find qualified professionals.
Ask your friends who have recently bought or sold if any of their agents have REO experience. If you know someone who’s bought a foreclosure, short sale, or REO property, talk to them first.
Reach out to real estate agents you already know and ask them who in their network specializes in REO, or whether their team has an REO specialist.
Also, try contacting fix-and-flip or buy-and-hold (landlord) investors in your area. Investors often buy distressed properties to maximize their profit when rented or sold. They probably know a good REO agent, but since they might view you as competition for the same properties, don’t take it personally if they won’t help!
2. Check your local or national Realtor association
The National Association of Realtors (NAR) has a “short sales and foreclosure” certification, which are similar to REO properties because the buyer is dealing with a bank or government agency on the sell side. Searching this database could yield good results.
To find an agent who matches your needs, choose “accredited buyer representative” for designations and “short sales and foreclosure resource” for certifications.
Once you find someone, take the time to interview them about their qualifications. Ask how many REO sales they’ve handled in the last year, and ask what happened during their last REO transaction.
A lot can go wrong with an REO sale, from issues with the title during the closing process to additional damage to the home between your offer and closing. Spellings advises finding someone who knows “every deal that’s gone South and why it’s gone South,” so they can guide you through every possible scenario.
3. Talk to REO listing agents
An REO listing agent works with local buyer’s agents when closing their sales. They will likely know the good REO buyer’s agents in your area. Listing agents for REO properties often work in teams, and they will have a buyer’s agent in their office to help you.
Remember, these agents are busy — they are representing a lot of different listings, and they might not get back to you right away. However, it could be well worth your time to ask them for any REO buyer’s agent’s contact information; they’ve been on the other side of lots of those transactions.
4. Search online
It’s quite possible that an REO buyer’s agent in your area has optimized their website so you can find them — and they may even have some blog posts to help you figure out what to do. Google “REO buyer’s agent” plus your location and see what pops up.
HomeLight’s agent matching tool is an option that helps homebuyers find the best agent for their search. It analyzes recent home sales and purchases to find the best agents for your needs, based on the type of property you’re looking for, your budget and timeline, and other attributes. Once you’re connected with an agent, you can interview potential matches for their REO experience.
During the “getting to know you” process, interview them like you would a potential hire at your workplace. Rushing this stage could lead to a poor buying situation. Even if you’ve seen the perfect REO house go on the market and are afraid of missing out, don’t feel pressured!
A home that looks great could be in a floodplain, or it could be missing all the copper plumbing. Someone could make an offer while you’re finding an agent, but then it could fall through. It’s not uncommon for REO homes to go on and off the market several times before a final sale — but if you just pick the first REO buyer’s agent you find, you could wind up buying a dud.
The only thing certain about an REO home purchase is that it won’t be predictable. “Expect the unexpected” will become your mantra when buying an REO house, but with the right agent helping you over the bumps in the road, you’ll soon be moving into your new home.
Header Image Source: (Austin Distel / Unsplash)