Dean Graziosi

Most of the times, REO and foreclosures are spoken in the same breath and used interchangeably. However, there are lines of difference between the two. When one is asked the question of which property to buy, a REO or a foreclosure, the explanation would be tight - and not a very lucid one. Instead, knowing how these two are brought about would help the buyer to decide which would suit them best.

REOs and foreclosures have many similarities, and both are brought about by the same reason of the borrower not being able to match up to the repayment schedule. For both, the principal driving force is to get the property sold of to a new buyer.

REOs usually happen as a result of a property not getting a buyer in the normal process of foreclosures. Therefore, the lender is forced to own the property since there are no takers at that moment.

Usually, most real estate brokers would second the idea of owning a foreclosed property due to many advantages. In fact, many would reason that it is the safest bet for many first time buyers, which would translate into minimal efforts of ownership except for the money and some due diligence. Even statistics back the idea that REO sales are more popular selling methods when it comes to buying foreclosed properties.

Essentially, a REO sale happens by the normal method of selling, whilst the foreclosure sale is usually through the auction method. In the REO sale the lender offers a price that is usually lower than the market and sometimes gives support to the buyers in owning the home. However, in the foreclosure through auction the buyer has to bid for a price and bear the unpaid amount.

In addition, in the foreclosure proceedings the property would be received by the bidder in the ‘as is’ condition; sometimes the eviction of a tenant may also be pending. In the REO sales, the lender usually takes care of the issues like the down payments, paper work, eviction, etc. These advantages make REO sales a much better option than foreclosure sales.

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The median price of the homes has seen the least value this year since 1970. Distressed sales, foreclosure sales and short sales accounted for 30 % of the sales in this quarter; this has brought down the price of the homes. The single-family price median stood at $177,900 and, in relation to 2008, the third quarter was lower by 11.2 percent. Usually these types of properties sell at a lower price than the properties coming fresh into the market. The good news is that the inventories are low and, with the demand going up, the prices could settle down in the coming months. However, this would need buyers with strong financial strength.

The tax credit extended to the first time homeowners provided a good push to the home seekers. The application for sales has really jumped in the last three months, mostly to qualify for the Nov 30th deadline, which has now been pushed back to June 30th 2010. In addition, the tax credit to the existing homeowners of $6500 should add to the buying numbers. Adding to this right mix of buying stimulants is the interest rate, which has climbed down to a staggering 4.98 percent for the 30-year fixed-term loan. This lowering of interest rates, with the slowing down of prices, has made it lucrative for individuals who have been waiting with cash in hand for the right moment.

For real estate agents, the news is that one should look at focusing on low end, small budget homes, which are really making a big splash. In addition, the agents should understand the foreclosed property sales and the short sales. These are the two areas people are focusing on due to the current market conditions.

Stephen R Pearson, working with the Century 21 Classic Properties, commented that there is a lot of activity in this segment and it would really benefit the buyers if there were someone to help. There are certification programs available in the market, which act as great awareness and enrichment programs for the professional that wants to be ready for action.

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