Guest Editorial |

Guest Editorial

Some of the best deals in real estate are foreclosed properties. REOs (Real estate owned) and short-sale properties have flooded the market, and buyers are taking advantage of the lower prices. But it’s important to understand what is involved with REOs and short sale properties and to know what you’re getting yourself into if this is the route you decide to take.

REOs are properties that banks have foreclosed on after the homeowners have not been able to make payments. Financial institutions are left with the burden of maintaining the properties and selling them in a challenging market. In order to unload the homes, banks often price them below market.

Short sales are a bit different from REOs. These are properties that a homeowner owes more than the value of the property and the lender has agreed to sell for less than the amount owed on the mortgage and forgive the seller their remaining debt.

REOs and short sales can be great deals, but they are more complicated to buy than traditional homes. If you’re thinking of looking in this market, here are some suggestions:

  • Find an experienced agent Get a real estate agent who is familiar with the process involved in buying REOs and short sales. It’s important to work with an agent who knows how to get you the best deal.
  • Hope for the best, prepare for the worst You will probably not be wowed when walking through the door of a foreclosed property. Most are sold "as is" and in the months leading up to foreclosure, homeowners often disregard maintenance and let the condition of the home deteriorate. Make sure to include the amount you will likely need to pay in improvements when setting your budget. Short sale properties are often in better condition. The homeowners tend to move out quickly, giving the home less time to deteriorate. Lenders will not lend on homes considered unlivable.
  • Be patient Transactions usually take longer when working with banks. An offer may have to be passed around for several people to review and approve. Expect a few days or a week to hear if your offer on an REO has been accepted. The wait for a short sale can be much longer because there is no set closing time. If a lender thinks it can get a higher price, it won’t mind waiting for months before closing. So if you are trying to purchase a new house around the time you’re selling your current one, a short-sale property is likely not the way to go.
  • Ask for help You may be able to find help with your down payment on a foreclosed property. Many cities have programs for first time buyers and those buying below-market properties. Also remember that just because you are buying from the bank doesn’t mean the price is set. There is always room for negotiation, even with closing costs.

    It’s been a long time since we’ve seen such a large number of foreclosures on the market. People are taking advantage of the lower prices, but these transactions can be trickier than standard sales. A foreclosed property could be one of the best investments you make, but also the most complicated. If you take time to research and talk to real estate experts in your area, you will likely find yourself reaping the benefits of your investment for years to come.

    Chris Jensen is the managing broker, Coldwell Banker Residential Brokerage of Utah, Park City office.

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