The concept REO stands for "Real Estate Owned" and are properties that lenders, often banks or mortgage companies, have acquired through the foreclosure process. When homeowners find themselves unable to meet mortgage payments, lenders initiate foreclosure proceedings, leading to the transition of the property to REO status.

The process for these types of properties begins with pre-foreclosure negotiations, followed by the actual foreclosure process. Once the lender acquires the property, it is auctioned, and if it does not sell, it becomes the property of the bank. Next comes the property appraisal and repairs, completing the process by listing the property with a specialized real estate agent. Offers are made, negotiations take place, and upon acceptance, the property goes through a due diligence process before the closing process begins.

REO properties operate within the real estate market, but offer unique considerations because of the advantages they have. Investing in distressed properties can provide benefits in terms of cost, market value and profitability.. One way to benefit from REO investments is to renovate the property and sell it for more than the purchase price.

However, the risk in this type of investment is that buyers must know and understand the nature of the assets for sale, conduct inspections, and secure financing or cash payment. is that buyers must know and understand the nature of the assets for sale, conduct inspections and secure financing or cash payment.

This type of property and sub-industry within the U.S. real estate market is gaining importance due to the current high mortgage rates. With a current rate of 7.18%, it will be interesting to see how many mortgages will begin to default.

Finally, REO properties present an opportunity for both buyers looking for a bargain and lenders looking to recoup investments. Their process, from foreclosure to sale, involves strategic pricing, market analysis and negotiations.. For buyers, understanding the nuances, challenges and potential benefits of REO purchases is vital.

Diego Covarrubias

Fynsa AGF Team