Post REO Auctions – As Is Means AS IS
The finance sector is believed to be holding a lot of real estate that has been acquired through the foreclosure process. This is real estate that is sitting as a cost to these business houses and over time, if they are not sold through REO sales, they are offered for auction. Private auction houses auction these properties and for buyers, it can be a good way to acquire real estate at heavily discounted prices.
There are drawbacks to buying REO stock through auctions. These drawbacks include:
- not being able to view the interior of properties
- the hidden costs – auction houses often add a buyers premium of 5-10% of the hammer price
- the difficulty in obtaining finance for these properties
- accepting the property in ‘as is’ condition
It is the last that can be the most problematic. In these auctions, ‘as is’ really does mean – AS IS. Unlike normal sales, there is no recourse should the property have major problems. These are all costs that the buyer will have to pay for. It is also one of the major reasons why mortgages can be difficult to obtain on REO auctioned properties.
For those that are cashed up and prepared to do some homework, REO auctions can provide real windfalls. If you can pay cash for a property that is in a fairly good neighborhood, is not that old, and looks sound from the outside then the chances are that there will be little to worry about in the form of major structural problems. You may even be able to obtain the property at 10%-15% below market value, even factoring in the auction house’s premium.
If you intend buying from REO auctions, be aware of the problems you may face, be prepared when it comes to financing the sale and do your homework on the property in question. If you’re prepared, you won’t be in for any rude shocks following the sale.
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