Buying a foreclosure or REO property in
What's an REO?
REO stands for Real Estate Owned. These are houses that have been through foreclosure which the bank or mortage company now possesses. This is different than 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 accrued during the foreclosure process. The buyer must also be willing to pay with cash in hand. Finally, you'll accept the property completely as is. That possibly could consist of standing liens and even current denizens that may require expulsion.
A REO, conversely, is a much neater and attractive transaction. The REO property did not find a buyer during foreclosure auction. Now the bank owns it. The bank will handle the removal of tax liens, evict occupants if needed and generally arrange for the issuance of a title insurance policy to the buyer at closing. Note 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 normally requires sellers to reveal any defects of which they are knowledgeable.
Is an REO in North Kingstown a bargain?
It's occasionally presume that any REO must be a bargain and an chance for easy money. This usually isn't true. You have to be prudent 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 pondering 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 flipping foreclosures. However there are also many REO's that are not good buys and may lose money.
Ready to make an offer?
Most lenders have a REO department that you'll work with while buying a REO property from them. 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 either the listing agent or REO department at the bank and learn as much as you can about what they know concerning 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 unseen damage and cancel the offer if you find it.
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. Once you've submitted 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 make another counter offer. Understand, you'll be working with a process that generally involves a group of 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.