Buying a foreclosure or REO property in
What's an REO?
REO's or Real Estate Owned are homes that have been foreclosed upon and are presently possessed by the bank or mortgage company. This is different than 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. You must also be willing to pay with cash in hand. Finally, you'll accept the property totally as is. That could consist of prevailing liens and even current occupants that need to be evicted.
A REO, by contrast, is a much cleaner and attractive option. The REO property was unable to find a buyer during foreclosure auction. The lender now owns it. The bank will deal with 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. Take notice that REOs may be exempt from standard disclosure requirements. In California, for example, banks are not required to give a Transfer Disclosure Statement, a document that ordinarily requires sellers to reveal any defects they are knowledgeable of.
Are REO's a bargain in Oklahoma City?
It is commonly though that any REO must be a bargain and an chance for easy money. This isn't always true. You have to be very careful 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 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 flipping foreclosures. But there are also many REO's that are not good buys and not likely to turn a profit.
Time to make an offer?
Most lenders 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 discover as much as you can about what they know concerning the condition of the property and what their process is for receiving 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 unseen 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 presented your offer, you can expect the bank to respond with a 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 probably involves multiple people at the bank, and they don't work evenings or weekends. It's not uncommon for the process of offers and counter offers to take days or even weeks.