Buying a foreclosure or REO property in
What is an REO?
REO stands for Real Estate Owned. These are houses which have completed the foreclosure process and are currently held by the bank or mortgage company. 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 accumulated during the foreclosure process. You must also be ready to pay with cash in hand. To top everything off, you'll accept the property one-hundred percent as is. That might comprise standing liens and even current tenants that may require removal.
A REO, on the other hand, is a much neater and attractive transaction. The REO property did not find a buyer during foreclosure auction. Now the bank owns it. The lender will handle the elimination of tax liens, evict occupants if needed and generally organize for the issuance of a title insurance policy to the buyer at closing. Take notice that REOs may be exempt from standard disclosure requirements. For example, in California, banks are exempt from giving a Transfer Disclosure Statement, a document that ordinarily requires sellers to tell you about any defects of which they are informed.
Are REO's a bargain in Winston-Salem?
It's commonly assumed that any REO must be a bargain and an possibility for easy money. This isn't necessarily 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 often anxious to sell it fast, they are also strongly motivated to get as much as they can for it. When contemplating 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 and selling foreclosures. But there are also many REO's that are not good buys and may not be money makers.
All set to make an offer?
Most banks 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 learn as much as you can about what they know regarding the condition of the property and what their process is for accepting offers. Since banks almost always sell REO properties "as is", you may want to include an inspection contingency in your offer that gives you time to check for unknown damage and terminate the offer if you find it.
As with making any offer on real estate, your offer may be more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender. Once you've submitted your offer, you can expect the bank to make a counter offer. At this point it will be your choice whether to accept their counter, or submit another counter offer. Understand, 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 quite common for the process of offers and counter offers to take days or even weeks.