Buying bank owned properties
There is a lot of interest in buying bank owned properties these days. A lot of information, some good and some bad, is floating around about the subject.   Often the information offered is for sale, with the promise that you can make a lot of money with little effort once you know “the secret formula”.  The fact is that there are no secrets, and to make money does require effort. For most these days, they are looking for an opportunity for one to live in themselves.  Many properties can be bought and for minimal investment made habitable for owner/occupants.

What’s an REO?
REO stands for “Real Estate Owned”.  These are properties that have gone through foreclosure and are now owned by the bank or mortgage company.  This is not the same as 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.  You must also be prepared to pay with cash in hand.  And on top of all that, you’ll receive the property 100% “as is”.  That could include existing liens and even current occupants that need to be evicted.  A REO, by contrast, is a much “cleaner” and attractive transaction.  The REO property did not find a buyer during foreclosure auction.  The bank now owns it.  The bank will see to the removal 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 REO’s may be exempt from normal disclosure requirements.  In Maryland, for example, banks are exempt from giving a Property Disclosures, a document that normally requires sellers to tell you about any defects they are aware of.

Is it a bargain?
It’s commonly assumed that any REO must be a bargain 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 to make money off of it as well as live in it as a long term investment.   While it’s true that the bank is typically anxious to sell it quickly, 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.  The bargains with money making potential exist, and many people do very well buying foreclosures. There are also special types of financing geared towards financing the cost of the improvements and repairs needed. A qualified buyer's agent is the best source to help you determine what type of financing the property qualifies for.  

Ready to make an offer?
  Typically 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 your own agent to schedule an appointment to view the property.  In it absolutely a must to have your own "Buyer's Agent" that owes you not only loyalty and obedience but will also only negotiate in your favor.   Since banks almost always 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 terminate the offer if you find it.  As with making any offer on real estate, you’ll need your offer to include documentation of your ability to pay, such as a pre-approval letter from a lender or proof of funds to close if you are paying cash.   After you’ve made your offer, you can expect the bank to make a counter offer.  This can take several days to sometimes a week.    Then it will be up to you to decide whether to accept their counter, or offer a counter to the counter offer.  Realize, you’ll be dealing with a process that probably involves multiple people at the bank, and they don’t work evenings or weekends.  It’s not unusual for the process of offers and counter offers as well as acceptance to take a couple of weeks.  Only a good buyer's agent can best advise you of the process as every bank is different and every REO property is different.  Working with myself as your agent you can be assured I know how to negotiate with the banks as well as what is feasible and best counsel you on how to determine if a foreclosure property is right for you.