Buying a foreclosure or REO property in
What is an REO?
REO is an abbreviation for Real Estate Owned. These are homes which have been foreclosed upon and are presently owned by the bank or mortgage company. This is not the same as a property up for foreclosure auction. When buying a property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees amassed during the foreclosure process. The buyer must also be prepared to pay with cash in hand. And on top of all that, you'll accept the property entirely as is. That possibly could include current liens and even current residents that need to be kicked out.
A REO, on the other hand, is a much neater and attractive transaction. The REO property was unable to find a buyer during foreclosure auction. The lender now owns it. The bank will handle the elimination of tax liens, evict occupants if needed and generally arrange for the issuance of a title insurance policy to the buyer at closing. Note that REOs may be exempt from standard disclosure requirements. For example, in California, banks do not have to give a Transfer Disclosure Statement, a document that typically requires sellers to make known any defects they are knowledgeable of.
Are REO's a bargain in Sunset Beach?
It is sometimes presume that any REO must be a good buy and an possibility for easy money. This isn't necessarily true. You have to be very careful about buying a REO if your intent is profit from the sell. While it's true that the bank is often anxious to sell it fast, they are also strongly interested to get as much as they can for it. When pondering the value of a REO, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs or remodeling needed to prepare the house for resale. There are bargains with potential to make money, and many people do very well flipping foreclosures. But there are also many REO's that are not good buys and may not be money makers.
Prepared to make an offer?
Most banks have a REO department that you'll work with in buying a REO property from them. Usually the REO department will use a listing agent to get their REO properties listed on the local MLS. Prior to making your offer, you'll want to contact either the listing agent or REO department at the bank and find out as much as you can about what they know about the condition of the property and what their process is for accepting offers. Since banks most commonly sell REO properties "as is", it's often prudent to include an inspection contingency in your offer that gives you time to check for unseen damage and terminate the offer if you find it.
As with making any offer on real estate, providing documentation of your ability to pay may make your offer more attractive, such as a pre-approval letter from a lender. Once you've presented your offer, you can expect the bank to counter offer. From there it will be up to you to decide whether to accept their counter, or offer a counter to the counter offer. Be aware, you'll be contending with a process that usually involves multiple people at the bank, and they don't work evenings or weekends. It's not unusual for the process of offers and counter offers to take days or even weeks.