Buying a foreclosure or REO property in
What's an REO?
REO's or Real Estate Owned are homes that have gone through foreclosure which the bank or mortage company now holds. 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 amassed during the foreclosure process. You must also be prepared to pay with cash in hand. Finally, you'll get the property totally as is. That may consist of prevailing liens and even current occupants that may require eviction.
A REO, on the contrary, is a much neater and attractive proposition. The REO property did not find a buyer during foreclosure auction. The bank now owns it. The lender will deal with 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. You should be aware that REOs may be exempt from typical disclosure requirements. For example, in California, banks are exempt from giving a Transfer Disclosure Statement, a document that typically requires sellers to make known any defects of which they are informed.
Is an REO in Annapolis a bargain?
It is sometimes though that any REO must be a bargain and an chance for easy money. This isn't always true. You have to be cautious about buying a REO if your intent is make money. While it's true that the bank is often anxious to sell it promptly, they are also strongly encouraged 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. There are bargains with potential to make money, 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. Commonly 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 concerning the condition of the property and what their process is for taking offers. Since banks almost always sell REO properties "as is", it may be in your best interest to include an inspection contingency in your offer that gives you time to check for hidden damage and cancel 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. Once you've submitted your offer, you can expect the bank to make a counter offer. At this point 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 contending with a process that most likely involves several 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.