You’re looking online for homes as you do every morning with your cup of coffee and the kids (hopefully) still sleeping when an amazing Victorian home pops up on your radar. It’s PERFECT and at an AMAZING price! Sure it needs some work, but I’m okay with that! I call my agent to schedule a showing and he tells me he Can’t. Show. It. Why?
It doesn’t look to be in that bad of condition, I’m approved for well over the price and it’s in a great neighborhood. I don’t get it. My Realtor® tells me it’s a Foreclosed Home. But what does that mean? It doesn’t look any different from the other homes on Zillow or Redfin?
Foreclosed homes are for the most part cash only. They are homes that belong to the Bank. Sometimes called REO (Real Estate Owned), these homes were at one time owned by a private person. For one reason or another, they lost their home to the bank that gave them the loan to buy it because they stopped making payments. First, that home’s in pre-foreclosure, meaning the payments are behind and the bank is gearing up to foreclose (and take back) the property.
Shortly thereafter, the home enters the foreclosure process and eventually the bank takes back possession. You might see on Zillow statuses like pre-foreclosure and foreclosure. That’s what these mean. The final leg of the process – at least in today’s world in our market – has the bank listing it with a local foreclosure agent as an REO listing.
REO listings are usually great deals. They’re cheaper than their counterparts and for good reason. They often have one or all of these issues: rotted wood, damaged/missing siding, peeling exterior paint, non-working utilities, missing fixtures, bad roofs, and more.
All of the above issues, taken together or considered separately, often make a foreclosed home un-financeable. Sometimes banks will consider what is called a rehab loan. Rehab loans are a lot like conventional loans with the twist that the buyer can obtain bids (by licensed contractors only, not family or DYI) to complete work that would otherwise prevent a bank from lending on the home. Note above list for work often completed.
Most banks (selling REO homes) do not want to deal with anything other than CASH offers. They don’t want to turn on the utilities and they aren’t going to make any repairs. That forces the house into a cash-only status and prevents very willing folks from using their pre-approvals for FHA/USDA/VA loans to buy the home.
Hint: Check the potential terms section hidden in the description and it will tell you if it is cash out or meets your loan type.
This is the thought process and experience your Realtor® is relying on to guide you away from this new, awesome Victorian foreclosure. It’s not that the Realtor® doesn’t want you to buy it – heck, that’s how they make a living! It’s that there is no actual ability to buy it, and therefore the Realtor® is saving your time and heartache by not showing it to you.
a Realtor & THAT house hunting wife1