Buying a foreclosure or REO property in
What's an REO?
REO's or Real Estate Owned are houses which have gone through foreclosure and are presently 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 accrued during the foreclosure process. You must also be prepared to pay with cash in hand. And on top of all that, you'll get the property completely as is. That could include existing liens and even current residents that need to be removed.
A REO, on the contrary, is a more tidy and attractive proposition. The REO property didn't find a buyer during foreclosure auction. Now the bank owns it. The bank will attend to the removal of tax liens, evict occupants if needed and generally organize for the issuance of a title insurance policy to the buyer at closing. You should be aware that REOs may be exempt from typical disclosure requirements. For example, in California, banks are not required to give a Transfer Disclosure Statement, a document that usually requires sellers to disclose any defects of which they are knowledgeable.
Is an REO in Colorado Springs a bargain?
It is occasionally presume that any REO must be a good buy and an possibility for easy money. This usually isn't 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 usually anxious to sell it quickly, 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. The bargains with money making potential exist, and many people do very well buying foreclosures. Still there are also many REO's that are not good buys and may lose money.
Time to make an offer?
Most banks have a REO department that you'll work with in buying a REO property from them. Commonly 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 what they know about the condition of the property and what their process is for getting offers. Since banks usually sell REO properties "as is", it's often prudent to include an inspection contingency in your offer that gives you time to check for unknown damage and terminate the offer if you find it.
As with making any offer on real estate, providing documentation of your ability to pay may make your offer more attractive, such as a pre-approval letter from a lender. After 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 several people at the bank, and they don't work evenings or weekends. It's not uncommon for the process of offers and counter offers to take days or even weeks.