If property owners stop making mortgage payments, banks often want the property back. When the owners’ location is unknown, lenders must repossess the property. These properties often get referred to as real estate-owned or REO properties.
Banks have no use for empty homes and put them on the market for new owners. Prospective buyers should review these three tips before purchasing an REO property.
Hire an independent home inspector
While banks often inspect homes before putting them on the market, hiring an independent inspector ensures prospective owners have a complete picture of the home’s condition. Inspectors look for any problems with structural integrity, mold and safety violations.
Evaluate the home’s actual cost
REO properties provide excellent opportunities for first-time home buyers and investors because the prices are usually lower than the average market value. However, real estate-owned properties generally get sold “as-is,” meaning new owners may need to make repairs or upgrades before moving in. Homes that have been vacant for an extended time can require extensive restoration before becoming livable. In these cases, potential buyers must evaluate if the property’s discounted price plus the repair cost is a good deal.
Consider purchasing an owner’s title insurance policy
A title is an owner’s legal claim to their property. When homes get foreclosed on, claims to the property title may be unclear. Purchasing title insurance helps if there are defects with the title, such as liens or other claims on the property.
Following these tips when purchasing REO properties can help homebuyers have a successful and profitable experience.