Buying bank owned properties
There is a lot of interest in buying bank owned properties these days. A lot of information (some good and some bad) is floating around about the subject. Often you must pay for the information offered, with the promise that you can make a lot of money with little effort once you know “the secret formula”. The fact is there are no secrets, and to make money does require effort.
What’s a 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 a 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 all that, you’ll receive the property 100% “as is”. That could include existing liens and even current occupants that need to be evicted. The purchase of a REO, by contrast, is a much “cleaner” and more attractive transaction. If the foreclosed property was not purchased by a third party during the foreclosure auction, ownership passes to the lender and the property is classified a REO which stands for "Real Estate Owned" (by the bank or mortgage company). The bank or mortgage company will see to the removal of tax liens, evict occupants if necessary and generally, prepare for the issuance of a title insurance policy to the ultimate buyer at closing. You should be aware that REO’s may be exempt from normal disclosure requirements. In some states, for example, banks are exempt from providing a Transfer Disclosure Statement or a Real Estate Condition Report, which are documents that normally disclose (to buyers) any property defects the sellers 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 isn’t true. You have to be very careful about buying a REO if your intent is to make money by reselling it. While it’s true that the bank is typically anxious to sell it 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. Bargains with moneymaking potential exist and many people do very well buying foreclosures. But there are also many REO’s that are not good buys and which will not likely turn a profit.
Ready to make an offer?
Most banks have a REO department and typically the REO department will use a listing agent to get their REO properties listed on the local MLS. To make your offer, you’ll want to contact the listing agent to find out as much as you can about what is known about the condition of the property and what their process is for receiving offers. Since banks almost always sell REO properties “as is”, you’ll want to be sure to include an inspection contingency in your offer so you have 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 substantiating your ability to pay, such as a pre-approval letter from a lender or documents providing proof of available funds. Once you’ve made your offer, it would not be unusual for the bank to make a counter-offer. Then it will be up to you to decide whether to accept their counter, or to submit another counter-offer in response. This may be a process that involves multiple people at the bank and they don’t usually work evenings or weekends. It’s not unusual for the process of offers and counter-offers to take days or even weeks. Voyager Village Realty is experienced in listing and selling REO Properties. Feel free to contact us to inquire about available properties.