Buying a foreclosure or REO property in
What's an REO?
REO stands for Real Estate Owned. These are homes that have gone through foreclosure which the bank or mortage company presently owns. 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 accumulated during the foreclosure process. You must also be prepared to pay with cash in hand. To top everything off, you'll get the property entirely as is. That might include prevailing liens and even current residents that may require eviction.
A REO, on the contrary, is a much neater and attractive transaction. The REO property was unable to find a buyer during foreclosure auction. Now the bank owns it. The bank will attend to the removal of tax liens, evict occupants if needed and generally organize for the issuance of a title insurance policy to the buyer at closing. Note that REOs may be exempt from normal disclosure requirements. For instance, in Calfornia, banks do not have to give a Transfer Disclosure Statement, a document that normally requires sellers to disclose any defects they are knowledgeable of.
Are REO's a bargain in Burlington?
It's occasionally believed that any REO must be a good deal and an chance for easy money. This isn't necessarily 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 typically anxious to sell it soon, they are also strongly encouraged 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 flipping 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 mortgage companies have a REO department that you'll work with while 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 learn as much as you can about what they know concerning the condition of the property and what their process is for receiving offers. Since banks most commonly 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 retract 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 made your offer, you can expect the bank to 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 usually 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.