"REO" or Real Estate Owned are houses which have gone through foreclosure that the bank or mortgage company now 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 added during the foreclosure process. You must also be ready to pay with cash in hand. Finally, you'll get the property 100% as is. That could include existing liens and even current denizens that need to be expelled.
A bank-owned property, on the contrary, is a much cleaner and attractive deal. The REO property was unable to find a buyer during foreclosure auction. The bank now owns it. The lender will attend to the elimination of tax liens, evict occupants if needed and generally plan 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 normally requires sellers to make known any defects of which they are informed. By hiring Arleen Hardenstein, DRE# 01710953, you can rest assured knowing all parties are fulfilling California state disclosure requirements.
It's sometimes presumed that any REO must be a bargain and a chance for easy money. This simply 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 looking to get as much as they can for it.
Look closely at the listing and sales prices of comparable homes in the neighborhood when considering the purchase of an REO. And factor in any repairs or upgrades necessary to prepare the house for resale or moving in. The bargains with money making potential exist, and many people do very well buying and selling foreclosures. Still there are also many REOs that are not good buys and may not be money makers.
Most mortgage companies have a department dedicated to REO that you'll work with when buying REO property from them. To get their properties advertised on the local MLS, the lender will frequently use a listing agent.
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 getting offers. Since banks typically sell REO properties "as is", you may want 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. If, as a buyer, you can provide documentation proving your ability to pay, such as a pre-approval letter from a lender, your offer will be more attractive and likely be accepted. (This holds for any real estate offer.)
After you've submitted your offer, it's customary for the bank to counter offer. From there it will be up to you to decide whether to accept their counter, or offer a counter to the counter offer. Your transaction might be settled in a single day, but that's rare. Since offers and counter offers usually allow a day or more for the other party to respond (and employees at a bank don't work nights or weekends) you could be looking at a week or longer.
FREE AUTOMATED EMAIL UPDATES
Sign in to take advantage of all this site has to offer. Save your favorite listings and searches – also receive email updates when listings you like come on the market for free!
*Contact Information is NOT Shared*