Use REO Listings to Find a Home You Can Actually Afford

Buying a home now is a nightmare. Just a few years ago, lenders were handing out 3% mortgages left and right, but today interest rates hover around 7% . Meanwhile, home prices are skyrocketing: The national median price is now just over $430,000, meaning you’d need a six-figure income to comfortably afford a home in nearly half the country.

If you’re looking to buy a home but prices in your area are sagging, it may be worth taking a look at post-foreclosure properties, also known as real estate owned (REO).

Why Buying Real Estate Owned (REO) Can Save You Money

Real estate owned (REO) is property that has been foreclosed on by a bank or other lender and could not be sold at auction or in a short sale . As a result, the bank now owns the property and likely sincerely desires it. Banks are not in the real estate or real estate servicing business, and holding real estate in their accounts increases their financial risk.

This often makes the bank a particularly motivated seller, which is good news for you: REO homes often sell for very competitive prices—called an REO discount , which can be as much as 41% of market value. You’re not guaranteed to save that much, and it doesn’t mean you’re going to buy a turnkey, million-dollar home at a bargain price, but you can definitely save some money by going this route.

One of the major caveats when considering REO properties is that they are typically sold as-is, so if a defaulting owner allows maintenance and repairs to lag toward the end of their ownership, you could end up with a lot of expensive repairs. On the other hand, the bank will usually pay off any liens or debts (such as unpaid property taxes) because they want to avoid obstacles that will prevent a quick sale. All this means that if you’re not afraid of buying an as-is home that may require significant repairs, buying an REO property from a bank can save you money.

How to Find REO Listings

Finding an REO property requires a little research as there is no centralized listing service you can turn to. But there are several common ways to detect them:

• Bank websites. Banks often have entire REO departments and have websites that list the REO properties they are trying to sell. Bank of America, for example, lists its properties here .

• Multiple Listing Service (MLS). The MLS is used by real estate professionals and also offers REO and foreclosure property listings. Some banks list their REO properties directly on the MLS.

• Ransom databases. Every REO home starts with foreclosure, so keeping track of foreclosures that fail to sell can allow you to be first in line for an REO listing. You can track foreclosures using a foreclosure database such as RealtyTrac , Auction.com or Foreclosures.com . Since real estate databases like Zillow or Trulia also list foreclosed properties, you can do the same thing—monitor a property to see if it fails to sell.

• Federal databases. The federal government issues a lot of mortgages and gets stuck with REO properties just like any other lender. When they do, they list them on HomePath (Fannie Mae properties), HomeSteps (Freddie Mac), or HUD Homestore (Federal Housing Administration-owned homes).

• Experienced realtor. If you decide to target REO homes, it’s a good idea to find a real estate professional in your area who has REO experience and is certified as Short Sales and Foreclosures (SFR) by the National Association of Realtors (NAR). NAR maintains a searchable database of these agents that can help you find someone in your area. You must also get pre-approved for financing. Banks are eager to get REO homes off their books, so they like to know you’re ready to pull the trigger.

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