Buying a foreclosure or REO property in
What is an REO?
REO's or Real Estate Owned are houses that have completed the foreclosure process which the bank or mortage company presently possesses. This is different than a property up for foreclosure auction. If you buy 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. You must also be prepared to pay with cash in hand. Finally, you'll accept the property completely as is. That possibly will include standing liens and even current occupants that need to be kicked out.
A REO, conversely, is a much cleaner and attractive proposition. The REO property did not find a buyer during foreclosure auction. The lender now 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 typical disclosure requirements. For instance, in Calfornia, banks are exempt from giving a Transfer Disclosure Statement, a document that usually requires sellers to tell you about any defects they are informed of.
Are REO's a bargain in Davie?
It's sometimes believed that any REO must be a bargain and an opportunity for easy money. This usually isn't 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 often anxious to sell it quickly, they are also strongly encouraged 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. 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 may lose money.
Prepared to make an offer?
Most banks have a REO department that you'll work with when 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. 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 about the condition of the property and what their process is for receiving 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 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. After you've presented your offer, you can expect the bank to counter offer. At this point it will be your decision whether to accept their counter, or submit another 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 typical for the process of offers and counter offers to take days or even weeks.