Buying a foreclosure or REO property in
What is an REO?
REO stands for Real Estate Owned. These are properties that have been foreclosed upon and are currently possessed by the bank or mortgage company. This is not the same as 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 accumulated during the foreclosure process. You must also be willing to pay with cash in hand. To top everything off, you'll accept the property completely as is. That may comprise standing liens and even current occupants that need to be removed.
A REO, on the other hand, is a much cleaner and attractive transaction. The REO property was unable to find a buyer during foreclosure auction. The lender 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. Do be aware that REOs may be exempt from standard disclosure requirements. In California, for example, banks are not required to give a Transfer Disclosure Statement, a document that ordinarily requires sellers to make known any defects they are aware of.
Is an REO in Davie a bargain?
It's occasionally though that any REO must be a steal and an possibility for easy money. This simply isn't true. You have to be very careful about buying a REO if your intent is make money. While it's true that the bank is usually anxious to sell it fast, they are also strongly interested 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 foreclosures. Still there are also many REO's that are not good buys and may not be money makers.
Time to make an offer?
Most mortgage companies have a REO department that you'll work with while 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. 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 getting offers. Since banks usually sell REO properties "as is", you may want to 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. Once you've made your offer, you can expect the bank to counter offer. At this point it will be up to you to decide whether to accept their counter, or make another counter offer. Realize, you'll be contending 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.