Buying Foreclosures/REO

There is a lot of interest in buying bank owned properties. A lot of information, some good and some bad, is floating around about the subject. Often the information offered is for sale, with the promise that you can make a lot of money with little effort once you know “the secret formula.” The fact is that there are no secrets, and to make money requires effort.

What is an REO?

REO stands for “Real Estate Owned.” These are properties that have gone through foreclosure and are now owned by the bank or mortgage company. This is not the same as 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 accumulated during the foreclosure process. You must also be prepared to pay with cash in hand. And on top of that, you’ll receive the property 100% “as is.” That could include existing liens and current occupants that need to be evicted. REO, by contrast, is a much “cleaner” and attractive transaction. The REO property did not find a buyer during foreclosure auction. The bank now owns it. The bank will see to the removal of tax liens, occupant evictions if needed, and generally prepare for the issuance of a title insurance policy to the buyer at closing. Be aware–REO’s may be exempt from normal disclosure requirements. In California, for example, banks are exempt from giving a Transfer Disclosure Statement, a document that normally requires sellers to tell you about any defects they are aware of.

Is it a bargain?

It’s commonly assumed that any REO must be a bargain and an opportunity for easy money. This simply is not true. You have to be very careful about buying a REO if your intent is to make money off of it. While it’s true that the bank is typically anxious to sell quickly, they are also strongly motivated 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. The bargains with money making potential exist, and many people do very well buying foreclosures. But, there are also many REO’s that are not good buys and not likely to turn a profit.

Ready to make an offer?

Most banks have a REO department. 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 wither the listing agent or REO department at the bank and find out as much as you can about what they know about the condition of the property and what their process is for receiving offers. Because banks almost always sell REO properties “as is,” you’ll want to be sure and include and inspection contingency in your offer that gives you time to check for hidden 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. After you’ve made 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 offer a counter to the counter offer. Realize 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 not unusual for the process of offers and counter offers to take days or even weeks.  

Realty World Complete Services

6950 Village Parkway, Dublin CA 94568

Belinda Buchanan DRE# 01445484

Certified REO Listing Broker

Office: (925) 895-5632  Fax: (800) 869-0615  Cell: (510) 684-5129

E-mail: info@belindabuchanan.com

Website: www.belindabuchanan.com