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Properties in default are a sad fact of the real estate market. Mortgage foreclosures can be lengthy and consist of a multiple step process which can present various buying possibilities. When a short sale is not successful, the lender assumes ownership and the property is now called real estate owned (REO). If you are interested in purchasing an REO property, its important to understand several distinctions between REO's and traditional transactions.
|Traditional Transaction||REO Transaction|
|Seller - is a homeowner or investor who wants the right price, favorable terms and timely closing.||Seller - is a lender, represented by an asset management company, that wants a quick sale at or above the bottom line price.
|Listing Agent - chosen by the seller.||Listing Agent - assigned by the asset manager.|
|Occupancy - the seller vacates the property on or before the closing.||Occupancy - the property may be vacant, abandoned, or in foreclosure limbo; eviction of former owner/tenants may be needed.|
|Property Condition - sale-ready condition usually, possibly including upgrades to enhance its value; cash or credit at closing for repairs.||Property Condition - varies greatly. May be at risk for vandalism and damage; possible price reduction to offset repairs, ultimately sold as is condition.
|Contingencies - are negotiable and may include property inspections, the sale of current home, mortgage approval or final walk through.
||Contingencies - property is offered as-is where-is. No subject to sales will be allowed. Inspections are allowed at the cost of the buyer and must be performed within a predetermined window. Utility hook-ups are the cost of the buyer for inspections and any damages are now the responsibility of the buyer to have fixed.|
Offers - the buyer offers a sale contract along with earnest money. The seller can accept, reject or counteroffer.
|Offers - the buyers sales contract must include proof of funds or a pre approval. The seller can accept, reject or counter or ask for highest and best in a multiple offer scenario.|
|Negotiations - include price, terms, closing date and contingencies. Goal is to create a win win for the buyer and seller.||Negotiations - generally only include price.
|Disclosures - government mandated disclosures along with a sellers disclosure.||Disclosures - government mandated disclosures. No sellers disclosure available.
|Closing - is negotiable; seller may agree to extend.||Closing - firm closing date with per diem charged for late closing.