Interested in REO property or a foreclosure?
Just as with any property purchase, your smartest move is to hire a professional real estate agent.
What is an REO?
"REO" or Real Estate Owned are houses which have been through foreclosure and are presently held by the bank or mortgage company. This is unlike 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 added during the foreclosure process. You must also be able to pay with cash in hand. To top everything off, you'll get the property completely as is. That may comprise of standing liens and even current tenants that need to be evicted.
A bank-owned property, on the contrary, is a more tidy and attractive transaction. The REO property did not find a buyer during foreclosure auction. Now the bank owns it. The bank will take care of the elimination 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 normally requires sellers to make known any defects they are knowledgeable of. By hiring Sereno Group, you can rest assured knowing all parties are fulfilling California state disclosure requirements.
Am I guaranteed a good deal when buying a bank owned property?
It's commonly believed that any foreclosure must be a bargain and an opportunity for easy money. This frequently isn't true. You have to be prudent about buying a REO if your intent is to make money. While it's true that the bank is usually eager to offload it fast, they are also looking to get as much as they can for it.
When considering what to pay for REO property, 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 REOs that are not good buys and not likely to turn a profit.
Time to make an offer?
Most mortgage companies have staff dedicated to REO that you'll work with when buying REO property from them. Typically the REO department will use a listing agent to get their REO properties listed on the local MLS.
Prior to making your offer, you'll want to contact either the listing agent or REO department at the bank and find out as much as you can about their knowledge concerning the condition of the property and what their process is for receiving offers. Since banks usually sell REO properties "as is", it may be in your best interest to include an inspection contingency in your offer that gives you time to check for unseen damage and terminate 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, it's customary for the bank to respond with a counter offer. At this point it will be up to you to decide whether to accept their counter, or make another counter offer. Your transaction might be final in a single day, but that's rare. Since offers and counter offers usually allow a day or more for the other party to respond (and employees at a bank don't work nights or weekends) you could be looking at a week or longer.