Buying a foreclosure or REO property in
What is an REO?
REO's or Real Estate Owned are homes that have been through foreclosure and are currently held by the bank or mortgage company. This is different than real estate 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 amassed during the foreclosure process. You must also be prepared to pay with cash in hand. To top everything off, you'll accept the property totally as is. That may consist of current liens and even current tenants that may require eviction.
A REO, conversely, is a more tidy and attractive transaction. The REO property was unable to find a buyer during foreclosure auction. The lender now owns it. The lender will see to the elimination of tax liens, evict occupants if needed and generally prepare 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 California, banks do not have to give a Transfer Disclosure Statement, a document that typically requires sellers to disclose any defects of which they are aware.
Is an REO in Triad Area a bargain?
It's frequently assumed that any REO must be a steal 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 typically anxious to sell it soon, they are also strongly encouraged 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. The bargains with money making potential exist, and many people do very well buying foreclosures. However there are also many REO's that are not good buys and may not be money makers.
Ready to make an offer?
Most mortgage companies 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 learn 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's often prudent to include an inspection contingency in your offer that gives you time to check for unknown damage and terminate 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 respond with a counter offer. At this point 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 working with a process that most likely involves a group of people at the bank, and they don't work evenings or weekends. It's not unusual for the process of offers and counter offers to take days or even weeks.