Buying a foreclosure or REO property in
What is an REO?
REO is an abbreviation for Real Estate Owned. These are houses which have completed the foreclosure process which the bank or mortage company presently holds. 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 accrued during the foreclosure process. The buyer must also be willing to pay with cash in hand. And on top of all that, you'll accept the property one-hundred percent as is. That possibly could include existing liens and even current occupants that need to be thrown out.
A REO, by contrast, is a more tidy and attractive proposition. The REO property was unable to find a buyer during foreclosure auction. The lender now owns it. The bank will deal with the removal of tax liens, evict occupants if needed and generally arrange for the issuance of a title insurance policy to the buyer at closing. You should be aware that REOs may be exempt from normal 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.
Is an REO in Davie a bargain?
It is frequently though that any REO must be a bargain and an possibility for easy money. This usually isn't 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 often anxious to sell it soon, they are also strongly encouraged 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 flipping foreclosures. However 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 while buying a REO property from them. Commonly 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 find out as much as you can about what they know regarding the condition of the property and what their process is for getting offers. Since banks typically sell REO properties "as is", it may be in your best interest to include an inspection contingency in your offer that gives you time to check for unknown 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 respond with a counter offer. From there it will be up to you to decide whether to accept their counter, or make another counter offer. Be aware, you'll be contending with a process that generally involves several 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.