Buying a foreclosure or REO property in
What is an REO?
REO's or Real Estate Owned are properties that have completed the foreclosure process which the bank or mortage company presently owns. This is unlike 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 amassed during the foreclosure process. You must also be willing to pay with cash in hand. And on top of all that, you'll get the property completely as is. That could consist of existing liens and even current occupants that need to be removed.
A REO, by contrast, is a much cleaner and attractive option. The REO property was unable to find a buyer during foreclosure auction. The lender now owns it. The lender will take care of 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. Do be aware that REOs may be exempt from normal disclosure requirements. For example, in California, banks do not have to give a Transfer Disclosure Statement, a document that usually requires sellers to reveal any defects they are aware of.
Are REO's a bargain in Tampa?
It's commonly though that any REO must be a good buy and an chance for easy money. This isn't always 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 typically anxious to sell it soon, they are also strongly encouraged 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. There are bargains with potential to make money, and many people do very well flipping foreclosures. However there are also many REO's that are not good buys and may lose money.
Time to make an offer?
Most mortgage companies have a REO department that you'll work with while buying a REO property from them. Typically 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 getting offers. Since banks almost always 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 terminate the offer if you find it.
As with making any offer on real estate, providing documentation of your ability to pay may make your offer more attractive, such as a pre-approval letter from a lender. Once you've presented your offer, you can expect the bank to respond with a counter offer. At this point it will be up to you to decide whether to accept their counter, or submit another counter offer. Realize, you'll be working with a process that generally involves multiple 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.