Buying a foreclosure or REO property in
What's an REO?
REO is an abbreviation for Real Estate Owned. These are houses that have been foreclosed upon which the bank or mortage company currently holds. This is different than 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. You must also be ready to pay with cash in hand. And on top of all that, you'll accept the property completely as is. That might comprise prevailing liens and even current occupants that need to be kicked out.
A REO, conversely, is a more tidy and attractive deal. The REO property didn't find a buyer during foreclosure auction. The lender now owns it. The bank will see to the elimination of tax liens, evict occupants if needed and generally plan for the issuance of a title insurance policy to the buyer at closing. Do be aware that REOs may be exempt from standard disclosure requirements. For example, in California, banks are exempt from giving a Transfer Disclosure Statement, a document that normally requires sellers to tell you about any defects they are aware of.
Is an REO in Durham a bargain?
It is sometimes though that any REO must be a steal and an opportunity for easy money. This isn't always true. You have to be cautious 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 interested 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. The bargains with money making potential exist, and many people do very well buying foreclosures. However there are also many REO's that are not good buys and may not be money makers.
All set to make an offer?
Most mortgage companies 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. 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", you'll want to be sure and include an inspection contingency in your offer that gives you time to check for hidden damage and retract the offer if you find it.
As with making any offer on real estate, you'll make your offer more attractive if you can include documentation of your ability to pay, 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. Be aware, you'll be working with a process that probably involves multiple 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.