What is an REO?
In Canada, Real Estate Owned (REO) properties are homes that have gone through the foreclosure process and are now owned by the lender, typically a bank or mortgage company. This situation occurs when the property fails to sell at a foreclosure auction, leading the lender to take ownership of the home.
Buying an REO property is different from purchasing a home at a foreclosure auction. When buying at an auction, buyers must pay at least the outstanding loan balance, plus any interest and fees accumulated during the foreclosure process, and typically must do so in cash. Additionally, the buyer receives the property “as is,” which may include existing liens or even current occupants who may need to be evicted.
By contrast, purchasing an REO property is usually a more straightforward process. Since the bank or lender now owns the property, they will typically clear any tax liens, evict occupants if necessary, and prepare the home for sale. The bank will also usually provide a clear title, ensuring that you can obtain title insurance at closing.
However, it’s important to note that REO properties in Canada may be exempt from certain disclosure requirements. Unlike traditional sales, where sellers must disclose known defects, banks selling REO properties might not be obligated to provide the same level of transparency. Therefore, it’s crucial to conduct thorough due diligence, including obtaining a home inspection.
Is REO Property in Canada a Bargain?
Many people assume that REO properties are always a bargain, but this isn’t necessarily the case. While banks are often motivated to sell these properties quickly, they still aim to recover as much of the outstanding loan balance as possible. This means that REO properties may not always be priced significantly below market value.
When considering an REO property, it’s important to evaluate comparable sales in the area and factor in the costs of any necessary repairs or renovations. While some REO properties do offer money-making potential, others may require substantial investment to bring them up to standard, which could reduce or eliminate potential profits.
Prepared to Make an Offer?
When you’re ready to make an offer on an REO property, you’ll typically work with the bank’s REO department, which may have a listing agent to handle the sale. Before submitting your offer, gather as much information as possible about the property’s condition and the bank’s process for accepting offers.
Because REO properties are usually sold “as is,” it’s crucial to include an inspection contingency in your offer. This allows you to withdraw the offer if significant issues are discovered during the inspection. Additionally, providing documentation of your ability to finance the purchase, such as a pre-approval letter from your lender, can make your offer more attractive to the bank.
Once your offer is submitted, it’s common for the bank to issue a counteroffer. Negotiations can take time, often involving multiple parties at the bank, and it’s not unusual for the process to extend over several days or weeks. However, with patience and the right guidance, buying an REO property can be a worthwhile investment.
Questions?
If you have any further questions about purchasing REO properties in Canada or need assistance navigating the process, feel free to reach out using the contact form below. We’re here to help you make informed decisions every step of the way.