Tiffany Elder, MBA, Realtor
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Buying a REO or foreclosure in Durham

What is an REO?

REO's or Real Estate Owned are houses which have completed the foreclosure process which the bank or mortage company presently holds. 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 added during the foreclosure process. You must also be ready to pay with cash in hand. And on top of all that, you'll receive the property entirely as is. That possibly will include existing liens and even current occupants that need to be kicked out.

A REO, on the other hand, is a much cleaner and attractive proposition. The REO property was unable to find a buyer during foreclosure auction. Now the bank owns it. The bank will take care of the removal of tax liens, evict occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing. Note that REOs may be exempt from normal disclosure requirements. For example, in California, banks are exempt from giving a Transfer Disclosure Statement, a document that ordinarily requires sellers to reveal any defects they are informed of.

Is an REO in Durham a bargain?

It is occasionally presume that any REO must be a steal and an possibility for easy money. This usually isn't true. You have to be cautious about buying a REO if your intent is to make money off of it. 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. It is possible to find REOs with money-making potential, and many people do very well buying foreclosures. However there are also many REO's that are not good buys and not likely to turn a profit.

Ready to make an offer?

Most lenders have a REO department that you'll work with while 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 regarding the condition of the property and what their process is for accepting offers. Since banks typically sell REO properties "as is", you may want to include an inspection contingency in your offer that gives you time to check for hidden damage and cancel 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. After you've submitted your offer, you can expect the bank to respond with a counter offer. Then it will be up to you to decide whether to accept their counter, or submit another counter offer. Be aware, you'll be dealing with a process that generally 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.