Buying a REO or foreclosure in Colorado Springs
What is an REO?
REO means Real Estate Owned. These are properties which have gone through foreclosure which the bank or mortage company now owns. This differs from 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. The buyer must also be willing to pay with cash in hand. To top everything off, you'll receive the property entirely as is. That may consist of prevailing liens and even current occupants that may require removal.
A REO, on the other hand, is a much neater and attractive deal. The REO property didn't find a buyer during foreclosure auction. Now the bank owns it. The lender will handle 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. Note that REOs may be exempt from typical disclosure requirements. In California, for example, banks do not have to give a Transfer Disclosure Statement, a document that typically requires sellers to reveal any defects of which they are knowledgeable.
Is an REO in Colorado Springs a bargain?
It's sometimes though that any REO must be a steal and an possibility for easy money. This just isn't 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 typically anxious to sell it soon, they are also strongly encouraged to get as much as they can for it. When pondering 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. There are bargains with potential to make money, and many people do very well buying and selling foreclosures. But there are also many REO's that are not good buys and may not be money makers.
Prepared to make an offer?
Most lenders have a REO department that you'll work with while 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. 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 regarding 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 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 submitted 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 contending with a process that usually involves a group of 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.