Buying a foreclosure or REO property in
What is an REO?
REO is an abbreviation for Real Estate Owned. These are homes which have gone through foreclosure and are currently owned by the bank or mortgage company. This differs from 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. To top everything off, you'll accept the property entirely as is. That could include standing liens and even current occupants that may require removal.
A REO, by contrast, is a more tidy and attractive transaction. The REO property did not find a buyer during foreclosure auction. Now the lender owns it. The bank will take care of the elimination of tax liens, evict occupants if needed and generally plan 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 are exempt from giving a Transfer Disclosure Statement, a document that typically requires sellers to tell you about any defects they are knowledgeable of.
Is an REO in Sugarloaf Key a bargain?
It's occasionally though that any REO must be a bargain and an opportunity for easy money. This isn't necessarily true. You have to be cautious about buying a REO if your intent is make a profit. While it's true that the bank is typically anxious to sell it promptly, they are also strongly motivated to get as much as they can for it. When contemplating 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. The bargains with money making potential exist, and many people do very well buying and selling foreclosures. But there are also many REO's that are not good buys and may not be money makers.
Ready to make an offer?
Most mortgage companies have a REO department that you'll work with when buying a REO property from them. Normally 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 discover 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 usually sell REO properties "as is", it's often prudent to include an inspection contingency in your offer that gives you time to check for unknown damage and cancel 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 submitted your offer, you can expect the bank to respond with a counter offer. At this point it will be your choice whether to accept their counter, or offer a counter to the counter offer. Understand, you'll be dealing with a process that most likely involves multiple people at the bank, and they don't work evenings or weekends. It's not uncommon for the process of offers and counter offers to take days or even weeks.