Buying a foreclosure or REO property in
What is an REO?
REO stands for Real Estate Owned. These are homes which have completed the foreclosure process which the bank or mortage company presently owns. 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. You must also be prepared to pay with cash in hand. Finally, you'll get the property totally as is. That possibly could comprise standing liens and even current occupants that need to be thrown out.
A REO, on the contrary, is a much cleaner and attractive transaction. The REO property did not find a buyer during foreclosure auction. Now the lender owns it. The lender 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. You should 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 ordinarily requires sellers to make known any defects of which they are aware.
Are REO's a bargain in Davie?
It's occasionally presume that any REO must be a good buy and an opportunity for easy money. This isn't always 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 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. There are bargains with potential to make money, 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.
Prepared to make an offer?
Most lenders have a REO department that you'll work with in 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 find out as much as you can about what they know about the condition of the property and what their process is for taking offers. Since banks almost always 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 withdraw 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 made your offer, you can expect the bank to make a counter offer. At this point it will be up to you to decide whether to accept their counter, or submit another counter offer. Be aware, you'll be contending with a process that generally involves a group of 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.