Buying a foreclosure or REO property in
What is an REO?
REO is short for Real Estate Owned. These are houses which have gone through foreclosure and are currently held by the bank or mortgage company. This is unlike 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. The buyer must also be able to pay with cash in hand. And on top of all that, you'll accept the property totally as is. That may consist of prevailing liens and even current occupants that may require removal.
A REO, on the other hand, is a much cleaner and attractive deal. The REO property did not find a buyer during foreclosure auction. The lender now owns it. The lender will attend to 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. Take notice that REOs may be exempt from normal disclosure requirements. In California, for example, banks are not required to give a Transfer Disclosure Statement, a document that usually requires sellers to disclose any defects of which they are aware.
Is an REO in Shelton a bargain?
It's sometimes though that any REO must be a good buy and an chance for easy money. This isn't always true. You have to be prudent about buying a REO if your intent is make a profit. While it's true that the bank is typically 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. There are bargains with potential to make money, and many people do very well buying foreclosures. But there are also many REO's that are not good buys and may lose money.
Time to make an offer?
Most lenders have a REO department that you'll work with when buying a REO property from them. Commonly 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 find out as much as you can about what they know regarding the condition of the property and what their process is for taking 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 unseen damage and withdraw 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 submitted your offer, you can expect the bank to make a counter offer. From there it will be up to you to decide whether to accept their counter, or make another counter offer. Understand, you'll be contending with a process that probably involves a group of 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.