Buying a foreclosure or REO property in
What is an REO?
REO is Real Estate Owned. These are properties which have completed the foreclosure process and are presently held 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 accumulated during the foreclosure process. The buyer must also be willing to pay with cash in hand. And on top of all that, you'll receive the property one-hundred percent as is. That might consist of standing liens and even current occupants that may require eviction.
A REO, on the contrary, is a much cleaner and attractive option. The REO property didn't find a buyer during foreclosure auction. Now the bank owns it. The lender will deal with the elimination of tax liens, evict occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing. Note that REOs may be exempt from normal disclosure requirements. In California, for example, banks are not required to give a Transfer Disclosure Statement, a document that normally requires sellers to disclose any defects of which they are knowledgeable.
Are REO's a bargain in Rice Lake?
It's commonly believed that any REO must be a good deal and an opportunity for easy money. This isn't necessarily true. You have to be prudent about buying a REO if your intent is to make money off of it. While it's true that the bank is usually anxious to sell it fast, they are also strongly motivated to get as much as they can for it. When considering 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 not likely to turn a profit.
Ready to make an offer?
Most banks have a REO department that you'll work with when buying a REO property from them. Typically 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 regarding the condition of the property and what their process is for taking offers. Since banks most commonly 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 hidden damage and retract the offer if you find it.
As with making any offer on real estate, your offer may be more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender. After you've submitted your offer, you can expect the bank to counter offer. From there it will be your choice whether to accept their counter, or offer a counter to the counter offer. Be aware, you'll be working with a process that usually involves several 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.