Buying a foreclosure or REO property in
What's an REO?
REO is Real Estate Owned. These are houses that have been through foreclosure which the bank or mortage company currently holds. This differs from a property 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 able to pay with cash in hand. To top everything off, you'll receive the property one-hundred percent as is. That possibly will comprise standing liens and even current denizens that need to be put out.
A REO, on the other hand, is a much cleaner and attractive proposition. The REO property did not 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. Note that REOs may be exempt from standard disclosure requirements. For instance, in Calfornia, banks are not required to give a Transfer Disclosure Statement, a document that ordinarily requires sellers to reveal any defects they are knowledgeable of.
Is an REO in Beverly Hills a bargain?
It is sometimes assumed that any REO must be a bargain and an opportunity for easy money. This just isn't 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 usually anxious to sell it soon, they are also strongly interested to get as much as they can for it. When contemplating 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. The bargains with money making potential exist, and many people do very well flipping foreclosures. However there are also many REO's that are not good buys and may not be money makers.
All set to make an offer?
Most lenders 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 discover as much as you can about what they know about 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 retract 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 respond with a counter offer. From there it will be up to you to decide whether to accept their counter, or offer a counter to the counter offer. Realize, you'll be dealing with a process that probably 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.