Buying a foreclosure or REO property in
What's an REO?
REO stands for Real Estate Owned. These are homes which have been foreclosed upon which the bank or mortage company now owns. 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 amassed during the foreclosure process. You must also be ready to pay with cash in hand. To top everything off, you'll receive the property entirely as is. That possibly may include current liens and even current denizens that need to be expelled.
A REO, on the other hand, is a much neater and attractive proposition. The REO property didn't find a buyer during foreclosure auction. The bank now owns it. The bank 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 normal disclosure requirements. For example, in California, banks do not have to give a Transfer Disclosure Statement, a document that usually requires sellers to tell you about any defects of which they are aware.
Is an REO in Orlando a bargain?
It's sometimes believed that any REO must be a steal and an opportunity for easy money. This isn't necessarily 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 usually anxious to sell it promptly, 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. The bargains with money making potential exist, and many people do very well buying foreclosures. But there are also many REO's that are not good buys and may not be money makers.
Time to make an offer?
Most mortgage companies have a REO department that you'll work with while buying a REO property from them. Usually 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 discover as much as you can about what they know concerning the condition of the property and what their process is for getting offers. Since banks most commonly sell REO properties "as is", you may want to include an inspection contingency in your offer that gives you time to check for unseen damage and cancel 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 made your offer, you can expect the bank to counter offer. At this point it will be up to you to decide whether to accept their counter, or make another counter offer. Be aware, you'll be dealing with a process that generally involves a group of people at the bank, and they don't work evenings or weekends. It's typical for the process of offers and counter offers to take days or even weeks.