Buying a foreclosure or REO property in

What is an REO?

REO stands for Real Estate Owned. These are properties which have been foreclosed upon and are currently owned by the bank or mortgage company. This differs from 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 ready to pay with cash in hand. And on top of all that, you'll accept the property one-hundred percent as is. That possibly may consist of current liens and even current residents that may require expulsion.

A REO, on the contrary, is a more tidy and attractive transaction. The REO property did not find a buyer during foreclosure auction. Now the lender owns it. The lender will see to 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. Take notice that REOs may be exempt from typical disclosure requirements. For example, in California, banks do not have to give a Transfer Disclosure Statement, a document that ordinarily requires sellers to make known any defects of which they are informed.

Is an REO in North Kingstown a bargain?

It's commonly believed that any REO must be a good buy and an opportunity for easy money. This isn't necessarily true. You have to be very careful 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 soon, they are also strongly interested 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. But there are also many REO's that are not good buys and may lose money.

Ready to make an offer?

Most banks 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 discover as much as you can about what they know about the condition of the property and what their process is for taking offers. Since banks usually sell REO properties "as is", you may want 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, your offer may be more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender. Once you've made your offer, you can expect the bank to counter offer. Then it will be up to you to decide whether to accept their counter, or submit another counter offer. Be aware, you'll be dealing with a process that generally 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.