Buying a foreclosure or REO property in
What is an REO?
REO's or Real Estate Owned are homes which have completed the foreclosure process which the bank or mortage company now owns. This is different than real estate 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. The buyer must also be able to pay with cash in hand. And on top of all that, you'll get the property one-hundred percent as is. That possibly will comprise prevailing liens and even current tenants that need to be thrown out.
A REO, by contrast, is a much cleaner and attractive option. The REO property didn't find a buyer during foreclosure auction. The bank now owns it. The bank will deal with the elimination of tax liens, evict occupants if needed and generally arrange for the issuance of a title insurance policy to the buyer at closing. Do be aware that REOs may be exempt from normal disclosure requirements. For instance, in Calfornia, banks are exempt from giving a Transfer Disclosure Statement, a document that ordinarily requires sellers to disclose any defects of which they are informed.
Is an REO in Colorado Springs a bargain?
It's commonly assumed that any REO must be a steal and an chance for easy money. This isn't necessarily true. You have to be cautious 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 soon, they are also strongly motivated 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. It is possible to find REOs with money-making potential, and many people do very well buying foreclosures. Still there are also many REO's that are not good buys and may not be money makers.
All set to make an offer?
Most lenders have a REO department that you'll work with when buying a REO property from them. Normally 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 find out as much as you can about what they know concerning the condition of the property and what their process is for accepting offers. Since banks typically sell REO properties "as is", you'll want to be sure and include an inspection contingency in your offer that gives you time to check for unknown damage and cancel 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 offer a counter to the counter offer. Understand, you'll be dealing with a process that most likely involves a group of people at the bank, and they don't work evenings or weekends. It's quite common for the process of offers and counter offers to take days or even weeks.