Question

Explain, what are the risks and rewards to a (i) Buyer (ii) Seller (iii) Lender and (iv) Real Estate Agent of a Buyer buying a REO property. 

Answer 1

The REO can be explained as real estate owned by a bank or any government agency in cases of unsuccessful auctions. The risk and reward for people involved during the real estate transactions are explained in the below table.

Risks:

Buyer	Seller	Lender	Real Estate Agents
Not sure if the property carries its original market value.	To sell the land at the discounted price due to its REO status	No sure if the land would get sold at the good value due to its REO status and hence recovering the amount lended would be a challenge.	Banks try to avoid real estate agents commission and pitch to sell directly.
Typically the property would be in poor maintained conditions.	Difficult to find customers and heavy investment to maintain the land.	Heavy investment on insurance to save the land against loss.	Difficult to convince customers to buy damaged and not maintained properties.

Rewards:

Buyer	Seller	Lender	Real Estate Agents
When purchasing a REO property the bank may sometime provide at a discounted price and remove other expenses which would greatly benefit the buyer.	Will be able to repay his loan even after unsuccessful auctions with the help of REO policy.	Can accumulate additional profit through REO line of business. Since it is not a bank primary business.	They may buy at a discounted price and resell it at a heavy market value.
Since the sale is done through legible sources like banks, the buyers worry about the illegal documents could be totally avoided.	There is no maintenance cost involved since it is an REO property.	Additional income and benefits in their books of accounts and financial transactions.	They can enter into the decent contract at the very begging when the bank gets in touches with them for the sale of the property.