Buying a foreclosure or REO property in
What is an REO?
REO's or Real Estate Owned are homes that have been through foreclosure which the bank or mortage company presently owns. This is not the same as 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 amassed during the foreclosure process. You must also be able to pay with cash in hand. Finally, you'll accept the property totally as is. That could include prevailing liens and even current residents that may require eviction.
A REO, by contrast, is a more tidy and attractive option. The REO property was unable to find a buyer during foreclosure auction. Now the lender owns it. The bank will attend 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. Take notice that REOs may be exempt from typical disclosure requirements. In California, for example, banks are exempt from giving a Transfer Disclosure Statement, a document that typically requires sellers to tell you about any defects of which they are knowledgeable.
Is an REO in Loveland a bargain?
It's commonly assumed that any REO must be a good deal and an chance for easy money. This isn't always true. You have to be prudent about buying a REO if your intent is profit from the sell. While it's true that the bank is often 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. There are bargains with potential to make money, and many people do very well buying and selling foreclosures. But there are also many REO's that are not good buys and may lose money.
Prepared to make an offer?
Most lenders 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 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 be sure and include an inspection contingency in your offer that gives you time to check for hidden 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. Once you've made your offer, you can expect the bank to respond with 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 generally involves several people at the bank, and they don't work evenings or weekends. It's not uncommon for the process of offers and counter offers to take days or even weeks.