Buying bank owned properties
Buying bank owned properties is becoming a hot topic and there is a lot of information floating around about the subject these days. The information is generally offered for sale, and with large promises that you can make a lot of money with little effort. The reality is that there are no secrets, and to make money does require effort.
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 pay in cash. The property is then sold to you 100% “as is”. That could include existing liens and/or current occupants that need to be evicted. An REO, by contrast, is a much cleaner transaction. The REO property did not find a buyer during foreclosure auction, so the bank now owns it. The bank will remove the tax liens, evict any occupants 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.
Is it a bargain?It’s commonly assumed that any REO must be a bargain and an opportunity for easy money, but that isn’t true. You have to be careful about buying an REO if your intent is to make money off of it. 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 an REO, you need to look closely at comparable sales and take the time and cost of any repairs or remodeling into account in order to prepare the house for resale. The bargains with money making potential exist, and many people do very well buying foreclosures. But there are also many REO’s that are not good buys and not likely to turn a profit.
Ready to make an offer?Most banks have an REO department to work with when buying an REO property. Typically the REO department will use a listing agent to get their REO properties listed on the MLS. Before making your offer, you’ll want to contact either the listing agent or the bank's REO department and find out 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”, you’ll want to include an inspection contingency in your offer that gives you time to check for hidden damage and potentially terminate the offer if deemed necessary. 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. After you’ve made your offer, you can expect the bank to make a counter offer. 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 to take days or even weeks.
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