Buying a foreclosure or REO property in
What's an REO?
REO's or Real Estate Owned are properties that have been foreclosed upon which the bank or mortage company now possesses. 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 ready to pay with cash in hand. To top everything off, you'll receive the property totally as is. That might consist of prevailing liens and even current occupants that need to be removed.
A REO, conversely, is a much cleaner and attractive transaction. The REO property was unable to find a buyer during foreclosure auction. The lender now owns it. The bank will take care of the elimination of tax liens, evict occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing. Take notice that REOs may be exempt from typical disclosure requirements. For instance, in Calfornia, banks are not required to give a Transfer Disclosure Statement, a document that typically requires sellers to make known any defects of which they are knowledgeable.
Is an REO in Covina a bargain?
It's frequently though that any REO must be a good buy and an possibility for easy money. This just isn't true. You have to be cautious about buying a REO if your intent is make a profit. While it's true that the bank is usually anxious to sell it fast, 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. There are bargains with potential to make money, and many people do very well flipping foreclosures. But there are also many REO's that are not good buys and not likely to turn a profit.
Prepared to make an offer?
Most banks 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. Prior to making your offer, you'll want to contact either the listing agent or REO department at the bank and learn as much as you can about what they know regarding the condition of the property and what their process is for getting offers. Since banks typically sell REO properties "as is", it may be in your best interest to include an inspection contingency in your offer that gives you time to check for unseen 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. After you've made your offer, you can expect the bank to counter offer. From there it will be your decision whether to accept their counter, or submit another counter offer. Realize, you'll be contending with a process that probably involves several 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.