Buying a foreclosure or REO property in
What's an REO?
REO's or Real Estate Owned are houses which have been foreclosed upon and are currently held by the bank or mortgage company. 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 added during the foreclosure process. You must also be prepared to pay with cash in hand. Finally, you'll accept the property totally as is. That possibly will comprise prevailing liens and even current occupants that need to be put out.
A REO, on the contrary, is a much neater and attractive option. The REO property did not find a buyer during foreclosure auction. The lender now owns it. The lender will handle 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. Do 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 normally requires sellers to make known any defects of which they are informed.
Are REO's a bargain in Beverly Hills?
It is occasionally though that any REO must be a good buy and an opportunity for easy money. This isn't always true. You have to be prudent about buying a REO if your intent is to make money off of it. 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 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. There are bargains with potential to make money, 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.
All set to make an offer?
Most lenders 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. Prior to 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 regarding the condition of the property and what their process is for getting 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 unseen damage and withdraw the offer if you find it.
As with making any offer on real estate, you'll make your offer 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 make a counter offer. From there it will be your decision whether to accept their counter, or offer a counter to the counter offer. Understand, you'll be dealing with a process that most likely involves several people at the bank, and they don't work evenings or weekends. It's typical for the process of offers and counter offers to take days or even weeks.