Buying a foreclosure or REO property in
What's an REO?
REO means Real Estate Owned. These are homes that have been foreclosed upon and are currently possessed by the bank or mortgage company. This is unlike real estate 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 added during the foreclosure process. You must also be ready to pay with cash in hand. Finally, you'll get the property entirely as is. That possibly will comprise standing liens and even current occupants that need to be evicted.
A REO, on the other hand, is a more tidy and attractive proposition. The REO property didn't find a buyer during foreclosure auction. The bank now owns it. The bank will deal with the elimination of tax liens, evict occupants if needed and generally organize for the issuance of a title insurance policy to the buyer at closing. Note that REOs may be exempt from typical disclosure requirements. For example, in California, banks are exempt from giving a Transfer Disclosure Statement, a document that normally requires sellers to tell you about any defects they are informed of.
Are REO's a bargain in South Central Oklahoma?
It is sometimes though that any REO must be a good buy and an possibility for easy money. This isn't always 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 usually anxious to sell it promptly, they are also strongly motivated 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 buying and selling foreclosures. But there are also many REO's that are not good buys and not likely to turn a profit.
Ready to make an offer?
Most banks have a REO department that you'll work with in 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. Before making your offer, you'll want to contact either the listing agent or REO department at the bank and learn as much as you can about what they know concerning the condition of the property and what their process is for accepting offers. Since banks almost always sell REO properties "as is", you'll want to be sure and include an inspection contingency in your offer that gives you time to check for unknown damage and withdraw 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. After you've made your offer, you can expect the bank to respond with a counter offer. Then it will be your choice whether to accept their counter, or offer a counter to the counter offer. Understand, you'll be working with a process that usually 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.