Buying a foreclosure or REO property in
What is an REO?
REO's or Real Estate Owned are homes which have been foreclosed upon which the bank or mortage company currently owns. This is not the same as 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 accrued during the foreclosure process. You must also be willing to pay with cash in hand. And on top of all that, you'll accept the property entirely as is. That may consist of prevailing liens and even current denizens that may require expulsion.
A REO, by contrast, is a more tidy and attractive deal. The REO property was unable to find a buyer during foreclosure auction. Now the lender owns it. The lender will attend to 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. Do be aware that REOs may be exempt from typical disclosure requirements. For example, in California, banks are not required to give a Transfer Disclosure Statement, a document that typically requires sellers to make known any defects they are knowledgeable of.
Is an REO in Davie a bargain?
It's frequently believed that any REO must be a steal and an opportunity for easy money. This isn't necessarily true. You have to be very careful about buying a REO if your intent is make a profit. While it's true that the bank is often anxious to sell it quickly, they are also strongly interested 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. It is possible to find REOs with money-making potential, and many people do very well buying and selling foreclosures. Still there are also many REO's that are not good buys and may lose money.
Prepared to make an offer?
Most lenders 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 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 almost always sell REO properties "as is", you may want to include an inspection contingency in your offer that gives you time to check for hidden damage and terminate 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 make a counter offer. Then it will be your choice whether to accept their counter, or submit another counter offer. Be aware, you'll be working with a process that generally involves multiple people at the bank, and they don't work evenings or weekends. It's quite common for the process of offers and counter offers to take days or even weeks.