Buying a foreclosure or REO property in

What is an REO?

REO is Real Estate Owned. These are houses that have been foreclosed upon and are currently possessed by the bank or mortgage company. This differs from a property 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 accumulated during the foreclosure process. You must also be prepared to pay with cash in hand. To top everything off, you'll accept the property completely as is. That might consist of existing liens and even current denizens that need to be thrown out.

A REO, on the other hand, is a much cleaner and attractive option. The REO property didn't find a buyer during foreclosure auction. The lender now owns it. The lender will handle 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. Note that REOs may be exempt from standard disclosure requirements. For example, in California, banks are not required to give a Transfer Disclosure Statement, a document that typically requires sellers to disclose any defects they are knowledgeable of.

Is an REO in Tampa a bargain?

It is commonly though that any REO must be a good deal and an opportunity for easy money. This isn't necessarily true. You have to be very careful about buying a REO if your intent is profit from the sell. While it's true that the bank is often anxious to sell it soon, 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. The bargains with money making potential exist, and many people do very well buying foreclosures. However there are also many REO's that are not good buys and not likely to turn a profit.

Ready to make an offer?

Most banks have a REO department that you'll work with in 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 receiving offers. Since banks usually sell REO properties "as is", it's often prudent to 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, 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 counter offer. At this point it will be your choice whether to accept their counter, or submit another counter offer. Realize, you'll be dealing with a process that usually involves several people at the bank, and they don't work evenings or weekends. It's typical for the process of offers and counter offers to take days or even weeks.