Making an offer on REO property or a foreclosure in ?
What is an REO?
"REO" or Real Estate Owned are properties which have been foreclosed upon that the bank or mortgage company currently possesses. This differs from 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. To top everything off, you'll accept the property entirely as is. That might involve current liens and even current tenants that need to be removed.
A bank-owned property, conversely, is a much neater and attractive deal. The REO property did not find a buyer during foreclosure auction. The lender now owns it. The lender will attend to the removal of tax liens, evict occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing.
Do be aware that REOs may be exempt from typical disclosure requirements. For example, in California, banks are exempt from giving a Transfer Disclosure Statement, a document that typically requires sellers to make known any defects they are informed of. By hiring Target Cost Realty, LLC, you can rest assured knowing all parties are fulfilling state disclosure requirements.
Is REO property in a bargain?
It is commonly assumed that any foreclosure must be a good deal and a chance for guaranteed profit. This often isn't true. You have to be prudent about buying a REO if your intent is to make money. While it's true that the bank is usually eager to sell it promptly, they are also motivated to get as much as they can for it.
Look carefully at the listing and sales prices of competing homes in the neighborhood when considering the purchase of an REO. And factor in any repairs or remodeling necessary to prepare the house for resale or moving in.
There are bargains with potential to make money, and many people do very well flipping foreclosures. Still, there are also many REOs that are not good buys and may not be money makers.
Prepared to make an offer?
Most lenders have staff dedicated to REO that you'll work with in buying REO property from them. Typically 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 discover as much as you can about their knowledge 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 hidden damage and withdraw the offer if you find it. If, as a buyer, you can provide documentation demonstrating your ability to secure financing, such as a pre-approval letter from a lender, your offer will be more attractive and likely be accepted. (This goes for any real estate offer.)
Once you've submitted your offer, you can expect the bank to counter offer. From there it will be your choice whether to accept their counter, or submit another counter offer. Be aware, you'll be working with a process that probably involves multiple people at the bank, and they don't work evenings or weekends. It's quite common for there to be days or even weeks of going back and forth. Target Cost Realty, LLC is accustomed to these situations and will work to ensure there are no undue delays.