Buying a foreclosure or REO property in
What is an REO?
REO means Real Estate Owned. These are homes which have been foreclosed upon which the bank or mortage company currently owns. This is different than a property 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 accumulated during the foreclosure process. The buyer 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 comprise standing liens and even current residents that need to be expelled.
A REO, by contrast, is a more tidy and attractive proposition. The REO property didn't find a buyer during foreclosure auction. Now the bank owns it. The lender will deal with 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. Do be aware that REOs may be exempt from standard disclosure requirements. For instance, in Calfornia, banks are exempt from giving a Transfer Disclosure Statement, a document that normally requires sellers to tell you about any defects they are informed of.
Are REO's a bargain in Annapolis?
It's commonly though that any REO must be a bargain and an opportunity for easy money. This isn't always true. You have to be cautious about buying a REO if your intent is make a profit. While it's true that the bank is typically anxious to sell it fast, 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 buying foreclosures. Still 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 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 about the condition of the property and what their process is for receiving offers. Since banks almost always sell REO properties "as is", it's often prudent to include an inspection contingency in your offer that gives you time to check for hidden damage and withdraw 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 make a counter offer. From there it will be up to you to decide whether to accept their counter, or offer a counter to the 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 typical for the process of offers and counter offers to take days or even weeks.