Buying a foreclosure or REO property in
What is an REO?
REO is Real Estate Owned. These are houses that have gone through foreclosure and are presently possessed by the bank or mortgage company. This is unlike a property 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. You must also be willing to pay with cash in hand. To top everything off, you'll get the property totally as is. That may comprise existing liens and even current denizens that need to be expelled.
A REO, on the contrary, is a much cleaner and attractive transaction. The REO property didn't 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. Note that REOs may be exempt from typical disclosure requirements. In California, for example, banks are not required to give a Transfer Disclosure Statement, a document that usually requires sellers to tell you about any defects of which they are informed.
Are REO's a bargain in North Kingstown?
It is 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 typically 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. It is possible to find REOs with money-making potential, and many people do very well flipping foreclosures. Still there are also many REO's that are not good buys and may not be money makers.
Ready to make an offer?
Most banks have a REO department that you'll work with in buying a REO property from them. Usually 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 taking offers. Since banks most commonly sell REO properties "as is", it's often prudent to include an inspection contingency in your offer that gives you time to check for unseen damage and withdraw 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 presented your offer, you can expect the bank to respond with a counter offer. Then it will be your choice whether to accept their counter, or make another counter offer. Be aware, 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 typical for the process of offers and counter offers to take days or even weeks.