Pitbull Mortgage School provides real time education in the field of
buying and selling REO properties.
Buying bank owned properties
There is a lot of interest in buying bank owned properties in today's marketplace.
There seems to be a significant amount of information available with little or no
guidance.
What's an REO?
REO stands for "Real Estate Owned".
These are properties that have gone through theforeclosure process and are now owned by the bank
or mortgage company. This is not the same as 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. And on top of all that, you'll receive the property 100% "as
is". That could include existing liens and even current occupants that need to be
evicted. A REO, by contrast, is a much "cleaner" and attractive transaction.
The REO property did not find a buyer during
foreclosure auction. The bank now owns it. The
bank will see to the removal of tax liens, evict occupants if needed and generally prepare for
the issuance of a title insurance policy to the buyer at closing. Do be aware that REO's
may be exempt from normal disclosure requirements. In California, for example, banks are
exempt from giving a Transfer Disclosure Statement, in Ohio - banks are exempt from giving a
Property Disclosure, both are documents that normally require sellers to tell you about any defects
they are aware of. The REO process is designed for the industry professional with experience.
Is it a good deal?
It's commonly assumed that any REO must be a bargain and an opportunity for easy
money. You have to be very careful about buying a REO While it's true that the
bank is typically anxious to sell the property quickly, they are also strongly motivated
to get the highest price for the property. 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. But
there are 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. 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 the listing agent and find out as much as you can about what they
know about the condition of the property and what their process is for receiving offers. At Park
Realtors, our process can be easily read under "REO information", found on the left side
of our website.
Since banks almost always 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 terminate
the offer if you find it. As with making any offer on real estate, you'll make your offer more
attractive if you include documentation of your ability to pay, such as a pre-approval letter from
a lender and have an earnest money check. Some banks won't even look at offers without those
items. After you've made your offer, you can expect the bank to make a counter offer.
Then it will be up to you to decide whether to accept their counter, or offer a counter to the
counter offer. Realize, you'll be dealing with a process that probably involves multiple
people at the bank, and they don't work evenings or weekends. It's not unusual for the process
of offers and counter offers to take at least 4-5 days or even weeks.
