Buying a foreclosure or REO property in
What's an REO?
REO stands for Real Estate Owned. These are houses that have been foreclosed upon and are currently held by the bank or mortgage company. This is not the same as 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. You must also be prepared to pay with cash in hand. And on top of all that, you'll get the property one-hundred percent as is. That could include existing liens and even current residents that need to be removed.
A REO, by contrast, is a more tidy and attractive option. The REO property didn't find a buyer during foreclosure auction. Now the bank owns it. The lender will deal with the elimination of tax liens, evict occupants if needed and generally arrange for the issuance of a title insurance policy to the buyer at closing. You should be aware 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 normally requires sellers to make known any defects they are knowledgeable of.
Are REO's a bargain in Clearwater?
It's frequently presume that any REO must be a good buy and an opportunity for easy money. This isn't necessarily true. You have to be prudent 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 quickly, 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 buying foreclosures. Still 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. 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 learn as much as you can about what they know about the condition of the property and what their process is for receiving offers. Since banks usually sell REO properties "as is", you'll want to be sure and include an inspection contingency in your offer that gives you time to check for hidden damage and retract 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 submitted 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. Understand, you'll be working with a process that generally involves several people at the bank, and they don't work evenings or weekends. It's not uncommon for the process of offers and counter offers to take days or even weeks.