What You Need to Know About Buying an REO Property in 2020

IL real estate attorney, Illinois real estate lawyer, If you are trying to find a new home at a good price, you might have family and friends mentioning that you try to find a foreclosure property. In theory, this is not a bad idea. A home that is for sale because the current owner defaulted on his or her mortgage could sell for far below market value. In the wake of COVID-19, however, foreclosures have all but stopped, thanks largely to a moratorium put in place on foreclosures on federally insured mortgages. Private lenders have mostly followed suit, which means that there are probably not many foreclosure properties available. The good news is that you may have another option for finding a good value: a real estate owned home, more commonly known as an REO property.

What Is an REO Property?

When a home is foreclosed on due to default on the mortgage, the lender (or current holder of the mortgage loan) will eventually seize the home and attempt to sell it. This sale usually takes place at a public auction. In most cases, a foreclosure auction does not give participants the opportunity to see the property or inspect the home ahead of time. This means that bidders are effectively making offers on a property about which they know very little. Additionally, the highest bidder is usually required to pay cash for the property at the time of the auction. Financing is uncommon at foreclosure auctions.

With all of this in mind, some foreclosure auctions do not result in the sale of the home. If the property does not sell, it still belongs to the bank or lender. At this point, the home is considered real estate owned or REO.

Buying an REO Home

Once a property becomes REO, the bank will usually start to take steps to sell the home. After all, the lender already lost money on the defaulted mortgage, so there is a vested interest in making some of that money back. An REO transaction is handled in much the same way as a standard real estate deal. The bank may enlist the help of a real estate agent to get the home listed on the “normal” listings. Prospective buyers can see the home and have it inspected. They can also make regular offers and arrange financing instead of having to frantically outbid other buyers at the auction.

Most REO properties are sold “as is,” which means that any repairs that need to be done will usually be the buyer’s responsibility. The selling lender is unlikely to arrange for the repairs or to drop the price to account for them. Therefore, it is advisable to include a contingency clause with your offer that gives the option of canceling the deal if the inspection reveals that the repair bill will be more than you can handle.

Why an REO Property Might Work Now

As the Chicago region and the rest of the country slowly starts to open back up again amidst concerns regarding COVID-19, the real estate market has suddenly flooded with people looking to buy a new home. In fact, the influx of prospective buyers has, by most accounts, tilted the market pretty substantially in favor of those with homes to sell. It can be tough to buy a home in a “seller’s market,” as prices are often higher, and sellers are less willing to include extra considerations in the deal compared to sale in a “buyer’s market.”

While there are significantly fewer foreclosures in process right now, a seller’s market gives lenders the incentive to get their REO properties listed and up for sale. REO properties are still typically priced on the lower end of the price range for comparable listings, so you might be able to find a great deal even in a seller’s market.

Call a Wheaton Real Estate Lawyer for Guidance

As things start to get back to some semblance of normal in the wake of COVID-19, lenders will be seeking to move REO homes as quickly as they can. While deals are out there, the process of buying an REO property can be complex. Contact an experienced DuPage County residential real estate attorney to get the help you need. Call 630-665-2500 for a confidential consultation at Stock, Carlson & Duff LLC today.

 

Sources:

https://www.investopedia.com/terms/r/realestateowned.asp

https://www.forbes.com/sites/forbesrealestatecouncil/2020/09/21/a-newfound-reality-buyers-currently-outnumber-sellers-in-housing-market/

https://www.washingtonpost.com/business/2020/09/10/home-prices-reach-record-high/

Understanding the Risks in a “For Sale by Owner” Real Estate Purchase

Wheaton, IL real estate attorneysThere are a number of reasons that you may want to purchase a home that is being sold by the owner. It could be that the property has everything you have been looking for, or it could simply be a desire to complete an expedient purchase. Whatever the case, there are some risks that you should be aware of, and some factors you should consider, when purchasing a “for sale by owner” (FSBO) property. These risks and factors – and how you can effectively manage them – could prove to be crucial. 

You May Have to Do Some Leg Work

Real estate agents are paid (and trained) to address many details for both the buyer and the seller. A FSBO owner, though interested in selling their property, does not have the same knowledge or experience, which means they may fail to provide you with important information. This oversight may not necessarily be intentional, but it is something you should be aware of. Furthermore, FSBO owners may lack the organizational skills needed to complete paperwork in a timely manner.

Be prepared for possible delays and never agree to anything until you have done your homework. At the very least, this should include an investigation on any previous insurance claims filed on the home, a market analysis of the area, research on zoning details and specific details of the property, and an experienced real estate attorney who can protect your interests by examining the contract and other details of the transaction.

Managing Your Escrow

When you purchase a home through a real estate agent, the escrow that goes toward your down payment is sent to a bank or other neutral entity. Buyers and sellers do not have to “do” anything extra to ensure this payment is secure. In a FSBO transaction, far too many prospective buyers make the mistake of giving the owner the escrow amount. This can result in all kinds of legal issues. Avoid this pitfall by searching for a neutral third-party who is willing to hold the earnest deposit until the process is complete.

Inspections and Contracts

When it comes to possible missteps in a FSBO transaction, there are two major ones that buyers often make: failing to effectively vet the home inspector and not hiring an attorney to review the contract. In a best case scenario, these two mistakes could cost you thousands of dollars in repairs or in remedying legal details surrounding the purchase. Worst-case scenarios are frightening and can include everything from learning that the home you purchased has a major issue (electrical problems, severe water damage, black mold, etc.) to finding out that there are years’ worth of back taxes owed on the property. Do not become victim to these circumstances! Hire a thorough inspector that will check every nook and cranny, and always contact a real estate attorney before signing a contract.

Work With a DuPage County Residential Real Estate Lawyer

At Stock, Carlson & Duff LLC, we protect the interests of our clients in FSBO real estate transactions. Able to provide knowledge, experience, and skilled assistance in areas pertaining to contracts, home inspections, zoning issues, and more, we are prepared to help you effectively and efficiently navigate the details of your real estate purchase. For more information, contact our Wheaton, IL real estate attorneys today. Call 630-665-2500.

Source:

https://www.thebalance.com/buying-for-sale-by-owner-1798295

Mistakes to Avoid When House Shopping

Illinois house shopping, DuPage County Real Estate AttorneyPurchasing a new home can be both exciting and intimidating. Looking at different real estate listings, daydreaming about your ideal home, and gathering different decorating ideas can be fun. However, dealing with the financial requirements and trying to understand the real estate and legal jargon can be confusing. Therefore, consulting with your own DuPage County real estate attorney when you are ready to make the move is essential.

There are several common mistakes made when shopping for a new home, and knowing what those mistakes are can help you avoid those pitfalls.

Mistake #1: Looking Before You Are Ready

The first factor to consider is if you are really ready to purchase a home. Although you may prefer to build equity each month instead of handing your money to a landlord, most real estate specialists agree that if you are planning on moving away from the area in which you are currently living, then you should avoid purchasing a home until you know where you will be settling. If you purchase a home now, you may not be able to resell or rent the home when you move away.

Mistake #2: Ignoring Your Predetermined Budget

Once you have made the decision to purchase, develop a budget and stick to it. Going over your budget by $20,000 can be tempting as it is only a slight increase of what you were planning on spending. However, a potential homebuyer always needs to consider whether his or her mortgage will still be affordable if something unexpected should happen, such as job loss or illness. Those thousands of dollars extra could end up making a big difference in your home payment.

With all of this in mind, it is better to be pre-approved for your mortgage so you will know exactly what you have to spend. Putting down at least a 20 percent down payment is also helpful. Anything less than that will typically require you to pay private mortgage insurance (PMI) until your equity hits the 20 percent mark.

Mistake #3: Failing to Account for the Costs of Owning a Home

It is sadly common for first-time homebuyers to overlook the additional costs of owning a home compared to renting. Besides the mortgage payment, there are extra expenses such as property taxes, utility bills that renters do not often pay (such as water and sewer bills), and home repair and maintenance costs. Remember to add these expenses into your monthly budget.

Mistake #4: Taking the Seller’s Word Without Documentation

Another mistake new homebuyers make is not getting everything in writing. For example, do not assume that the appliances come with the home unless your contract states that they do. Other household items that can cause conflict between a buyer and a seller include window drapes and blinds, light fixtures, ceiling fans, and bathroom fixtures. If the seller takes those items, then you as the buyer will have to replace them. Ask yourself how that expense will factor into the final sale price of the home.

Contact a Wheaton Real Estate Lawyer

If you are in the process of purchasing a home, please contact an experienced DuPage County real estate attorney to make sure that you are protected in the house sale. Call Stock, Carlson & Duff LLC at 630-665-2500 today.

Sources:

http://www.forbes.com/sites/learnvest/2013/03/06/the-7-top-home-buying-mistakes-you-should-avoid/

https://www.bankrate.com/real-estate/first-time-homebuyer-mistakes/