Buying a foreclosure or REO property in
What is an REO?
REO's or Real Estate Owned are homes which have gone through foreclosure and are now held by the bank or mortgage company. This differs from real estate 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 added during the foreclosure process. The buyer must also be prepared to pay with cash in hand. And on top of all that, you'll get the property one-hundred percent as is. That possibly could consist of prevailing liens and even current occupants that need to be put out.
A REO, conversely, is a much neater and attractive deal. The REO property didn't find a buyer during foreclosure auction. The bank now owns it. The lender will attend 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 typical disclosure requirements. For example, in California, banks are not required to give a Transfer Disclosure Statement, a document that normally requires sellers to reveal any defects of which they are aware.
Is an REO in Durham a bargain?
It is occasionally though that any REO must be a steal and an possibility for easy money. This isn't necessarily true. You have to be very careful about buying a REO if your intent is profit from the sell. While it's true that the bank is often anxious to sell it promptly, they are also strongly motivated 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. It is possible to find REOs with money-making potential, and many people do very well buying foreclosures. Still 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 banks 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. Prior to 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 concerning the condition of the property and what their process is for taking offers. Since banks usually 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 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. Once you've presented your offer, you can expect the bank to counter offer. Then it will be your choice whether to accept their counter, or submit another counter offer. Be aware, you'll be working with a process that probably involves several 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.