Foreclosure? REO? Bank-owned? What's the difference?

They all mean the same thing.

"REO" is not a type of Speedwagon, at least not in real estate jargon. REO stands for Real Estate Owned (by a bank or other mortgage underwriting institution). The terms "REO", "bank-owned", and "foreclosure" all mean exactly the same thing: a property to which ownership has been transferred to the underlying lien-hold because the owner on title was unable (or unwilling) to continue making mortgage payments. 

Are foreclosures a good deal?

It is a common misconception that bank-owned properties are inherently a "good deal". Some are and some aren't. Banks, just like "normal" sellers, make many of the same mistakes when deciding on a price. If they price the property too low, it could be a fantastic bargain. If they price it too high, the property will most likely sit on the market with very little activity. But it would be a huge mistake for any buyer to assume they're getting a good deal, just because they're buying a home directly from a bank. 

Things to know when buying a foreclosure property

Banks, unlike people, don't have sympathy. An asset manager who works for the bank, managing their RES "assets" might have a heart, but the bank does not. A bank's primary interest is in the profits of their shareholders, their "bottom line". Banks are also large, well-funded, powerful institutions. When they sell real estate, they insist on playing by their own rules. And unfortunately, they're big enough (and employ enough attorneys) to do exactly that. A buyer can expect the following when trying to buy a bank-owned property:

  • Banks will insist that offers be written on their own, proprietary contracts. These contracts are written by their attorneys, exclusively for the benefit of their best interests, often to the exclusion of the interests of the buyer. 
  • Banks will insist that buyers waive certain protections and contingencies that would otherwise be written into any normal purchase contract. 
  • Banks will insist that buyers take title to the property by way of a Special Warranty Deed (or similar deed type), rather than the more common General Warranty Deed. The primary difference between the two is that a General Warranty Deed covers the new owners against all claims against the property for the property's entire history. A Special Warranty Deed, on the other hand, only protects the new owners against debts and claims which arose during the bank's ownership of the property, which usually isn't a very long time.
  • Banks will force the buyer to pay for utility services to be restored to a property for the purposes of the buyer's inspection and appraisal. This often requires the buyer make a deposit with the utility company to get electricity and water service returned to the property. And most utility companies only allow services to be turned on for a few days.
  • Because utility service may only be returned to a property for a few days, buyers are often forced to schedule their home inspection and appraisal at the same time (whereas normally the appraisal isn't scheduled until after the buyers are satisfied with the home inspection results). With home inspections usually costing $350+ and appraisals usually costing $500+, the buyer may be out-of-pocket $850 or more without even knowing for sure that they want to purchase the home!
  • Purchasing a bank-owned property typically takes a little longer than purchasing a "normal" property. Whereas most lenders can close conventional and FHA home loans in 30 days or less, banks usually require at least 45 days to close. 
  • Banks are not very responsive and when they do respond, they respond slowly. Buyers are often frustrated to learn that the home they're interested in, although it appears "available" on the MLS, actually has offers pending that the bank simply hasn't responded to yet. Most banks will require that parties bringing an offer allow at least 7 business days for a response. Of course, during that time, other parties may also submit offers on the property. This greatly diminishes any benefit of trying to move quickly when a bank-owned property is listed for sale. 
  • Banks may charge buyers a per diem (a daily charge) of $50-$100 for every day that a buyer may need to delay the closing of the transaction. In some cases, the bank may force the payment of a per diem even when it's the bank's fault that the transaction's closing is delayed!
  • Banks will not accept lower-than-asking-price offers. While banks may offer to credit the buyer up to 3% towards the buyer's closing costs, they will not negotiate on price. The author of this website has heard rumors of banks accepting "low-ball" offers, but has never had one accepted himself. Nor does he personally know any real estate broker who has ever had an offer that was less than asking price accepted. It seems the banks prefer to lower the asking price of their listings at their own pace. In many cases, the final price the bank sells the property for (after reducing the price several times) may be less than an offer they might have previously rejected!

 Knowing all of that, if you still want to shop for a bank-owned property. . .

click HERE to view all foreclosures in Seattle

or HERE to view all foreclosures in King County.

Map of Seattle foreclosures. Click to view.

 Map of Seattle foreclosures

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The database information herein is provided from and copyrighted by the Northwest Multiple Listing Service (NWMLS). NWMLS data may not be reproduced or redistributed and is only for people viewing this site. All information provided is deemed reliable but is not guaranteed and should be independently verified. All properties are subject to prior sale or withdrawal. All rights are reserved by copyright.