Guide to Purchasing Real Estate Part V
Placing an Offer in Real Estate Owned, REO Properties
Placing an offer and dealing with the real Estate Owned, REO properties required a different pricing strategy in comparison to the purchase of any real estate through traditional channels. The overwhelming number of foreclosed homes and short sale resulted in different procedures for the purchase of such properties. As Foreclosed properties suddenly became an integral part of the real estate inventory, the Realtors, the buyers and the mortgage bankers scrambled to adjust to the monstrous effects of addition of these properties in the real estate negotiations and transactions.
One of the changes in the procedure was the use of third party vendors to register and valuate the foreclosed homes. To expedite the process, instead of traditional appraisal companies, they hired the Realtors to do the valuations of the properties. This Valuation is called BPO or Broker price Opinion. Due to many circumstances, some of these valuations failed to portray the real fair market value of the foreclosed homes, most often pricing them below when compared to non-REO properties. The undervaluation of these properties resulted in the influx of investors and speculators to the real estate market. The cash buying investors had the negative effects on home buyers who were planning to become owner occupants, which eventually resulted in the change of rules by many financial institutions. One of the primary rules was to limit the market to owner occupant during the first days of the listing, usually the first 10 to 15 days. If no owner occupant put an offer on the foreclosure home then the property opens up to investors.
It is important to mention that not all the foreclosure properties were valuated at lower than fair market values through BPO valuations. Some of these homes in actuality were priced in and around the market value and some listed at even higher price than compatible non-REO properties. For this reason, working with a real estate broker who is experienced in the BPO and REO process is crucial in negotiating the best price when buying foreclosure homes. As a former licensed real estate appraiser, I have been doing Broker Price Opinion (BPO) for many mortgage servicing companies for over a decade. These companies represent major national banks like Bank of America, Wells Fargo, Bank of NY Melon and more…
Having a comprehensive knowledge of pricing and BPO process is the best tool I can offer for home buyers and investors in helping them to purchase foreclosure homes at the best compatible prices possible.
The series of article will continue in Guide to Purchasing Real Estate Part VI