Buying a foreclosure or REO property in
What is an REO?
REO's or Real Estate Owned are properties which have been foreclosed upon which the bank or mortage company currently holds. This is different than 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 amassed during the foreclosure process. The buyer must also be prepared to pay with cash in hand. And on top of all that, you'll accept the property one-hundred percent as is. That possibly may comprise prevailing liens and even current residents that need to be kicked 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 bank owns it. The lender will handle the removal 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 normal disclosure requirements. For instance, in Calfornia, banks are not required to give a Transfer Disclosure Statement, a document that normally requires sellers to disclose any defects of which they are aware.
Is an REO in Landrum a bargain?
It is occasionally though that any REO must be a good deal and an possibility 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 motivated to get as much as they can for it. When pondering 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 may not be money makers.
Time to make an offer?
Most mortgage companies have a REO department that you'll work with in 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 discover as much as you can about what they know concerning the condition of the property and what their process is for receiving offers. Since banks typically 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 terminate 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. Once you've presented your offer, you can expect the bank to respond with a counter offer. Then it will be your decision whether to accept their counter, or make another counter offer. Realize, you'll be dealing with a process that usually involves multiple 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.