Buying a foreclosure or REO property in
What is an REO?
REO is short for Real Estate Owned. These are homes that have completed the foreclosure process which the bank or mortage company presently holds. 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 accrued during the foreclosure process. The buyer must also be willing to pay with cash in hand. Finally, you'll receive the property entirely as is. That may comprise existing liens and even current tenants that need to be expelled.
A REO, by contrast, is a more tidy and attractive transaction. The REO property didn't find a buyer during foreclosure auction. The lender now owns it. The bank will take care of the removal of tax liens, evict occupants if needed and generally plan for the issuance of a title insurance policy to the buyer at closing. Take notice that REOs may be exempt from typical 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.
Are REO's a bargain in Tulsa?
It is sometimes assumed that any REO must be a steal and an possibility for easy money. This isn't always true. You have to be prudent about buying a REO if your intent is to make money off of it. While it's true that the bank is often 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. Still there are also many REO's that are not good buys and may not be money makers.
Time to make an offer?
Most banks have a REO department that you'll work with when buying a REO property from them. Commonly 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 discover as much as you can about what they know about 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 hidden damage and cancel the offer if you find it.
As with making any offer on real estate, you'll make your offer more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender. Once you've made your offer, you can expect the bank to make a counter offer. At this point it will be your decision whether to accept their counter, or offer a counter to the counter offer. Realize, you'll be working with a process that usually involves a group of 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.