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

What is an REO?

REO's or Real Estate Owned are properties which have completed the foreclosure process which the bank or mortage company now owns. This is unlike 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 amassed during the foreclosure process. The buyer must also be able to pay with cash in hand. To top everything off, you'll accept the property completely as is. That may comprise current liens and even current residents that may require removal.

A REO, on the other hand, is a much neater and attractive proposition. The REO property was unable to find a buyer during foreclosure auction. Now the lender owns it. The lender will see 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 standard disclosure requirements. For example, in California, banks do not have to give a Transfer Disclosure Statement, a document that ordinarily requires sellers to make known any defects they are aware of.

Is an REO in Durham a bargain?

It is commonly though that any REO must be a steal and an opportunity for easy money. This simply isn't 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 quickly, they are also strongly motivated 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 and selling foreclosures. But there are also many REO's that are not good buys and may lose money.

Ready to make an offer?

Most banks have a REO department that you'll work with when buying a REO property from them. Normally 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 regarding the condition of the property and what their process is for taking offers. Since banks usually sell REO properties "as is", you may want 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 counter offer. From there it will be your choice whether to accept their counter, or offer a counter to the counter offer. Understand, you'll be working with a process that generally involves multiple people at the bank, and they don't work evenings or weekends. It's not uncommon for the process of offers and counter offers to take days or even weeks.