By: Dennis Norman
In parts 1 and 2 of this series I gave my history of buying property and where I found the “good deals” at as well as how the times and technology, most notably the internet, have changed things. We now find ourselves in a time when information about foreclosures, property sales, homes for sale, etc are available to anyone with a computer and internet access. We also find ourselves in a time where the foreclosure rates are at record levels and lenders and banks across the country are struggling to deal with their REO’s.
OK, now we are finally to the point raised by the title of the intial post of this series; Are REO’s a good deal? Of course one cannot answer this question for all REO’s in every price range and market across the country, so let’s drill down a little deeper. Here are some things I think investors should consider:
- How experienced are you? REO’s are generally sold “as is” and most lenders require the buyer to sign a contract addendum that basically relieves them of any liability or obligation under the sale including even making you aware of defects in the home they are aware of….in addition these agreements usually give the seller the opportunity to back out of the deal at any time but you don’t have the same rights. This type of “one-sided” deal bothers me and always has. I have negotiated many deals in my 29 years in this business and with sellers of all types….my approach was to always try to make the deal a “two way street”. In other words, if the other party had a right to back out without penalty I wanted the same right. If the other party had the right to sue for damages, I wanted the right to sue for damages. This approach always seemed reasonable and fair to me but most likely you will not see that “fairness” in the documents for a REO deal. Therefore if you are not an experienced, seasoned investor, that has the ability to really investigate the condition of the house and understand the ramnifications of the paperwork you will be required to sign, then perhaps REO’s are not a “good deal” for you.
- Realize that REO’s are not secret and information on them is generally readily available to anyone
intersted. What does this mean? That no one else is going to have to put forth any more effort than you did to try to buy an REO. With this in mind do you think you are going to be getting a great deal? I doubt not. I’m not saying that all REO deals are bad deals, I’m just saying don’t kid yourself. The REO you just bought was available and most likely known to by every other investor or wanna be investor out there. You got it for one reason….you paid the highest price. With that said I do have to admit that sometimes REO’s are priced lower than they should be and if you act upon it immediately, like the day the listing hits the market, you may have an opportunity to make a good deal. You still have to deal with the risks addressed in my first point above though. - The “highest and best” scenario. This is another one of the things that really annoys me about REO deals…When there is one listed that may actually be a decent deal, evidenced by several offers coming in right away the standard procedure is for the lender to come back to all buyers that made offers and ask for your “highest and best” offer. In a normal real estate deal your offer would be countered by the seller leaving you with the option to accept the sellers counter offer, at which point you have a deal, or to coutner back with another price. In the case of the REO the seller is committing nothing to you…instead they are just advising you that they have received multiple offers on the property and they are offering you the opportunity to bid against yourself….they expect you to show your cards by increasing your offer to the maximum you are willing to pay in the hope of beating out the other buyers however they are committing nothing to you. I hate this and when in this situation have felt “used” by the seller. In my old days I had a different term for this, but I’m a christian now so I’ll leavei it alone. In any event I don’t like this practice and, once again, the only way you win is by paying more than everyone else that was interested.
If you consider these points and then proceed to try to buy REO’s as an informed buyer then I think you will be fine. I would just suggest not to kid yourself and think that REO’s are a good deal automatically and to approach them with your eyes open.
If you are really serious about finding good deals on real estate then put forth the effort to find more exclusive sources. Find deals that are not easy to find and not readily available to anyone that is interested. To this you say sure, sounds like a great idea, how do I do it? Well, that’s another post in the future….check back for my tips on how to find the “Good Deals’.
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