The Hidden Costs of buying REO Proeprties

After selling hundreds of REO properties through the years, I constantly hear buyers voice concern over closing costs on REO properties. In most cases when buying an REO property, the closing costs will be no more than any typical real esate closing. In fact, if you are an owner occupant, many REO sellers (Freddie Mac and Fannie Mae in paticular) will pay up 3% of the purchase price towards closing costs on financed deals. All you need to do is ask at the initial offer.

There are a few outrageous REO sellers out there, Ocwen (Altisource Homes) is one that comes to mind imediately that charges higher than normal closing costs. But they are more the exception than the standard.

What you really want to look out for are the hidden costs AFTER closing. The issue with REO properties is, rarely does the lisitng agent have an opportunity to speak to the previous owner about details of the property. Here are some of the surprise costs I have run across in the past.

1. Mail box keys or common area keys- This is most typical in Condos and Townhomes. Many have a general mailbox area which requires a key to the box. Most times when buying a REO home, this key will not be found and you will need to have it replaced. I have seen some keys go up to $200 in the past.

2. Water softners- If you are looking at a home with a water softner, see if there is a name on the unit. Many are rented from companies by the previous owner and left behind without canceling the contract. While you will not be responsible for any past due amounts, the company will remove their equipement if you do not agree to sign a new agreement.

3. Propane Tanks- In rural ares, many times you will have a propane tank for your furnace rather than natural gas. The good thing about propane tanks and REO homes, any gas left behind in the tank is included with the home. The bad, sometimes these tanks are rentals and you will need to sign up with the gas company if you wish to keep the tank.

4. HOA dues- 98% of the time, these are caught prior to closing. The issue usually arises in newer subdivisions that are currently not charging a HOA but plan to in the future. This could be an added cost to your monthly budget in the future.

5. Sewer bills- These are the most common and most expensive overlooked items. Most title companies and agents are very good about checking on past due amount prior to closing. But if the property is in an obscure area or shares a sewer system with another town, it could get over looked. Always request a zero balance statement from the title company or lisitng agent that proves the REO seller has paid all outstanding sewer balances to date.

6. Garage door openers- This is a minor cost as you can pick up a programable opener at most hardware stores, but can be an inconvenience if you do not realize it up front. If you are looking to buy an REO home and see a garage door opener in the home, consider yourself lucky!

Happy Buyng!