Most real estate investors, homeowners and potential homebuyers may have encountered the term REO or real estate owned properties and the term that most of them do not want to deal with, foreclosure. Although there are apparent similar terms when defined, REO is essentially different from foreclosure since it technically refers to a property that has already been foreclosed and did not yield any potential buyer during the foreclosure auction or sale.

Most homebuyers found themselves torn by an important decision whether to purchase an REO property or foreclosed ones. After all, home purchase is considered one of the most vital and valuable investments a person could ever make, thus, making the right choice is the initial step to a successful real estate venture. Before making the final decision and plunge to whatever type of property you plan to purchase, it is imperative to know first the distinctions between REO and foreclosed properties.

What are basic facts on REO vs. Foreclosure?

The fundamental difference is the essence of the two components, REO means a property that has already been foreclosed and foreclosure is the process of taking back a property due to the inability of the previous owner to comply with the mortgage payment agreement he has with the lending company or the bank that issued him the house loan.

In terms of transaction and investment, there are likewise salient distinctions between REO and properties that are yet subject to foreclosure auction and sale.

  • Market value. This is one of the basic factors that spell a great difference regarding REO vs. foreclosure. REO is definitely given a comparatively low market price since in reality, banks are doing their very best to sell the property the soonest possible due to all the liabilities and financial losses they incurred in acquiring the property. Purchasing foreclosed properties on the other hand requires homebuyers to start with a minimum bid in a foreclosure auction. Furthermore, the minimum bid for the property is inclusive of loan balance, accrued interest and all other fees and costs incurred during the process of foreclosure.
  • Home Inspection and Appraisal. REO property purchase is a hassle-free transaction in the first place, including the provision of privileges to potential homebuyers to make home inspection and appraisals which is not always the case when buying properties in a foreclosure auction. This is an advantageous opportunity for homebuyers since they have personal or first-hand experience going around the house and checking its quality and other functions. Most buyers bring along home inspectors and appraisers who can help them evaluate and assess the value of the house they are planning to buy, as well as possible setbacks that they may find along the way. It adds more confidence and security to the buyers who primarily aim to put their hard-earned finances into a sound and wise real estate venture.

The main issues and concerns regarding REO vs. Foreclosure give ample time and opportunity for investors and buyers to weigh the pros and cons of both components.