What Does REO Stand for in Real Estate?

by Tricia Chaves, Demand Media

Overview

REO stands for Real Estate Owned properties, which get reclaimed by the bank or government agency which financed their mortgage after failing to sell at a real estate auction. Generally, REO properties get sold on the open real estate market using a real estate agent or in bulk sales to investors. REO properties generally get sold at a discounted price when compared to comparable properties.

History

Foreclosures in the United States date back to the early 1930s. Following the stock market crash in the fall of 1929, unemployment rose and caused the housing and bank markets to fall. At the same time, a sandstorm- and drought-filled season caused farmers' businesses to fold. By 1933, almost 0.73 percent of the homes in the United States became bank REO properties with about a thousand occurring daily. The nation's first REO auctions, referred to as "penny auctions," forced profit-hungry banks to purge unsold properties, which became liabilities.

Features

An REO property can be any age or style, in virtually any neighborhood. The majority of REO foreclosed properties require work to rehabilitate or repair problems. Typical REO property issues include damaged walls, missing fixtures or appliances and faulty mechanical components. A former property owner's unwilling and unhappy departure coupled with a long period of vacancy is a recipe for property damage.

Benefits


Eager banks may offer attractive financing programs to buyers to unload REO properties. Some REO loan incentives include zero percent or a reduced down payment when compared with conventional loans, lower interest rates, less stringent credit criteria, faster approval and financing for homes which other lenders may not approve.

Negotiation


Vacant REO homes are a profit drain on bank owners, resulting in an urgency for sales. When a buyer makes an offer to purchase a REO home, it can seem less personal and less emotional than a transaction with a traditional homeowner-seller. In an REO home offer, the bank representative simply considers the bank's bottom line and generally makes a fast decision, which can result in a smooth and quick closing.

Warning

Banks typically sell REO properties "as-is." As a buyer, a professional property inspection allows you to make an educated offer for purchase considering the costs involved to repair any existing defects. A buyer may offer less or request the bank make a repair in the instance of major home systems such as electrical, plumbing and mechanics, and the bank may agree to facilitate a sale.

For-Sale-By-Owners Vanish, Sellers Turn to Real Estate Pros

WASHINGTON – Feb. 21, 2011 – For-sale-by-owners are rare nowadays. In fact, the number of FSBOs dropped to record lows over the past year.

Unrepresented sellers make up just 11 percent of the market, down from 13 percent in 2009, according to the 2010 National Association of Realtors® Profile of Home Buyers and Sellers.

With today’s more complex transactions – such as with short sales and foreclosures and frequent changes in mortgage lending – more sellers are finding comfort in the help of real estate professionals to guide them through the process.

In the seller’s market, FSBO sellers tried to sell the home themselves because they thought they could save on commission fees, but today’s sellers realize that if they don’t use an agent, it’ll likely cost them more in the long run, experts say.

“Selling by owner does not guarantee the seller will put 5 [percent] to 6 percent more in his or her pocket in trade for doing all the work and taking on potentially costly liabilities,” Margaret Woda, associate broker with Long & Foster in Crofton, Md., told The Washington Times. “On the contrary, prospective FSBO buyers have their eyes on that 5 percent to 6 percent as well. It’s more likely the buyer will win this negotiation in a buyer’s market with a huge price reduction – probably even larger than the saved commission.”

Some FSBO sellers also often make the mistake of listing their home at a higher price than the market warrants. But even if they do find a buyer for that price, unless it’s a cash purchase, the home has to be appraised and many deals can then fall apart.

Source: “Fewer Sellers Going Do-it-Yourself Route,” The Washington Times (Feb. 11, 2011)

© Copyright 2011 INFORMATION, INC. Bethesda, MD (301) 215-4688

Shopping Tips For Buying a Home Warranty

CHICAGO – Feb. 21, 2011 – Home warranties can be attractive to homeowners or buyers considering a purchase. These service contracts can cover all of a home’s major systems, such as the furnace or air conditioner, and needed repairs if the appliance breaks or gets damaged.

Some sellers offer a home warranty to lure buyers.

But not all home warranties are the same. Experts say you should carefully weigh costs, policy allowances, and customer feedback before making a decision to ensure you’re getting the best deal. Home warranties cost about $250 to $500 a year.

Here are some more home warranty tips from experts:

• Find customer reviews. Websites, such as homewarrantyreviews.com, review home warranty companies. You also might check how each company is rated with the local Better Business Bureau.

• Check for extra fees. Will you have to pay a set price for service calls?

• Check the coverage allowance. Are there any exclusions? Will the allowance cover the entire cost of a broken appliance or just part of it? For example, if you have older appliances and mechanicals, will the policy cover the full cost of replacing it or just the depreciated value? If the policy only covers the depreciated value when a 20-year-old furnace dies, for example, the reimbursement may not be enough to buy a new one.

• Verify which appliances are included in the coverage. Some companies will allow you to add coverage for swimming pools, while others won’t.

“The biggest thing is awareness of what the exclusions are,” Greg McBride, a senior financial analyst at Bankrate.com, told the Chicago Tribune. “The mere presence of a warranty, by nature, tends to have exclusions. Being aware of that can aid in the decision-making process.”

Source: “When home warranties are worth it,” Chicago Tribune (Feb. 8, 2011)

© Copyright 2011 INFORMATION, INC. Bethesda, MD (301) 215-4688

Fla.’s existing condo sales up in 4Q 2010

ORLANDO, Fla. – Feb. 10, 2011 – Sales of existing condominiums in Florida rose 6 percent in fourth quarter 2010 compared to the same period a year earlier, according to the latest housing statistics from Florida Realtors®. A total of 17,231 existing condos sold statewide in 4Q 2010; during the same period the year before, a total of 16,229 units changed hands.

Thirteen of Florida’s metropolitan statistical areas (MSAs) reported higher existing condo sales in the fourth quarter, according to Florida Realtors. The statewide existing-condo median sales price was $86,400 for the three-month period; in 4Q 2009, it was $105,600 for a decrease of 18 percent. The statewide existing-condo median price in the fourth quarter was nearly 2.9 percent higher than it was in 3Q 2010.

Looking at Florida’s housing sector in the fourth quarter, Dr. Sean Snaith, director of the University of Central Florida’s Institute for Economic Competitiveness, pointed out that the jobs outlook has a major impact. “Persistently high unemployment constrains demand and feeds into the ongoing foreclosure problem,” Snaith said. “Given the state of the labor market, a continuing decline of home and condo prices in the fourth quarter is not surprising or unexpected. However, it’s important to note the rate of price decline is decelerating.

“As the labor market recovery takes hold in 2011, it will help put a floor beneath price declines and ultimately will provide the basis of housing’s recovery.”

Meanwhile, in the year-to-year quarterly comparison for existing single-family home sales, 39,338 homes sold statewide for the quarter compared to 43,494 homes in 4Q 2009 for a 10 percent decrease. The statewide existing-home median sales price was $134,100 in 4Q 2010; a year earlier, it was $140,500 for a decrease of 5 percent. Sales of foreclosures and other distressed properties continue to downwardly distort the median price because they generally sell at a discount relative to traditional homes, according to the National Association of Realtors® (NAR). The median is a typical market price where half the homes sold for more, half for less.

Optimism has increased slowly but steadily in Florida real estate markets through the fourth quarter of 2010, according to the University of Florida’s Bergstrom Center for Real Estate Studies’ latest quarterly survey of real estate trends. The report surveys economists, industry executives, real estate scholars, researchers and other experts.

Center Director Timothy Becker noted improvement in several key categories, including the outlook for sales in new single-family homes and condominiums, office occupancy, retail occupancy, land investment and capital availability. Respondents’ expectations for occupancy and rent increased across every property type, while the investment outlook rose in a majority of the property types. The statewide outlook was the highest since the survey’s inception in 2006, he said.

“Overall, the market appears to be improving and will continue to improve at a slow pace over the next year,” Becker said.

Low mortgage rates continued to be available during the fourth quarter of the year. According to Freddie Mac, the national commitment rate for a 30-year conventional fixed-rate mortgage averaged 4.41 percent in 4Q 2010; one year earlier, it averaged 4.92 percent.

City of Bradenton to get $520,177 from HUD

The City of Bradenton has received notification from the U.S. Department of Housing and Urban Development that $520,177 is available for this fiscal program year for the City's Community Development Block Grant Program.

The CDBG program works to ensure decent affordable housing, services to the most vulnerable in the City, and job creation through the expansion and retention of businesses. The CDBG program is an important tool that helps local government tackle the challenges facing their communities. This program makes a difference in the lives of thousands of people throughout the City of Bradenton - and millions across the nation.

“The program’s success is the result of strong partnerships among the elected officials at all levels of government, neighborhood based nonprofit organizations, private sector, and HUD,” said Lesa Livingston, Manager, City of Bradenton's Housing & Community Development Division.

HUD awards grant money to communities to carry out a wide range of local development activities directed toward revitalizing neighborhoods, economic development, and providing improved community facilities and services.

Typically, activities funded include construction of public facilities and improvements, such as water systems, streets, and community centers; rehabilitation of houses and landmark structures; assistance to private, for profit entities to carry out economic development activities and the provision of public services.

For more information, please contact Lesa Livingston at (941) 932-9481 or lesa.livingston@cityofbradenton.com.

As housing languishes, mortgage write-downs gain appeal for banks

As housing languishes, mortgage write-downs gain appeal for banks RALEIGH, N.C. – Sept. 9, 2010 – Eager to avoid writing down the loans on their books, banks have been extending many of them with the hope that the market will improve. Even banks that foreclosed on properties have kept them on their books, reluctant to auction them in a market where investors offer as low as 10 cents on the dollar.

Now that appears to be changing, and it could have implications for property owners caught up in the sell-off.

“The proverbial logjam is beginning to break up,” said Jim Anthony, CEO of Anthony & Co., a Raleigh real estate services company.

As evidence, Anthony said BB&T plans to auction $1 billion of performing and nonperforming loans in the Southeast.

BB&T would neither confirm nor deny reports of the auction. “BB&T continues to evaluate opportunities to best execute our problem loan disposition strategy, which may or may not include bulk sales,” said spokeswoman Cynthia Williams.

BB&T has been more aggressive of late in writing down its troubled loans and moving to rid itself of some of them. The bank’s CEO, Kelly King, has indicated the strategy will continue as long as investor appetite for the loans remains at current levels.

Other regional banks, including Pittsburgh-based PNC Financial Services Group and Birmingham, Ala.-based Regions Financial, are pursuing similar strategies.

The move to deal with troubled real estate loans is driven partly by federal regulators who have increased pressure on banks whose capital ratios fall below a certain level.

“I think the banks are coming to terms with the fact that, particularly, commercial real estate is declining in value and it’s just not coming back in the next three months or six months,” said Tony Plath, a banking professor at the University of North Carolina-Charlotte. “It’s going to be a while before we’re out of the hole as far as real estate values are concerned.”

The auctions also are a sign that the gap between what the banks will take for the loans – and what investors will pay – is narrowing.

“I think all of the banks have reached the point where they realize they’re not going to get 80 cents on the dollar for the value of the loans they package,” Plath said. “They’re going to be looking at something like 35 or 40 cents on the dollar, which seems to be where these loan packages are selling.”

For property owners whose loans are included in these packages, the auctions could mean trouble.

If an investor buys a loan for 40 cents on the dollar, that means they can foreclose on the property, auction it off and still make a profit.

“The borrowers that are included in the package face much more rigorous collection efforts on behalf of the buyer,” Plath said. “(If you’re a borrower,) you really don’t want that loan sold.”

© 2010 The News & Observer (Raleigh, N.C.). Distributed by McClatchy-Tribune Information Services.

Fed governor: Turn REOs into rentals

Fed governor: Turn REOs into rentals WASHINGTON – Sept. 3, 2010 – Federal Reserve Governor Elizabeth Duke, speaking at a conference on vacant housing, called for more alternatives for the disposal of REO properties besides traditional homeownership.

Duke advocated an increase in rental housing, lease-purchase deals and converting foreclosed owners to renters.

“Homeownership, long promoted by federal policy and facilitated by local housing organizations, cannot and should not be the only alternative to REO properties,” Duke said. “Even in the best of times, homeownership limits mobility in the labor market.”

Source: Reuters News (09/01/2010)

© Copyright 2010 INFORMATION, INC. Bethesda, MD (301) 215-4688