Looking for a foreclosure or REO property in ?
What's an REO?
REO is short for Real Estate Owned. These are homes that have completed the foreclosure process which the bank or mortage company currently owns. This is unlike 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 prepared to pay with cash in hand. And on top of all that, you'll receive the property completely as is. That possibly could consist of existing liens and even current denizens that may require eviction.
A REO, conversely, is a more tidy and attractive proposition. The REO property did not find a buyer during foreclosure auction. The lender now owns it. The bank will handle 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. Take notice that REOs may be exempt from typical disclosure requirements. For example, in California, banks do not have to give a Transfer Disclosure Statement, a document that typically requires sellers to make known any defects they are knowledgeable of.
Are REO's a bargain in Beverly Hills?
It is frequently assumed that any REO must be a bargain and an possibility for easy money. This isn't necessarily true. You have to be cautious 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 encouraged 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. But there are also many REO's that are not good buys and not likely to turn a profit.
Time to make an offer?
Most banks have a REO department that you'll work with when buying a REO property from them. Usually 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 accepting offers. Since banks almost always sell REO properties "as is", you'll want to be sure and include an inspection contingency in your offer that gives you time to check for hidden 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 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 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 not uncommon for the process of offers and counter offers to take days or even weeks.