Buying a foreclosure or REO property in
What's an REO?
REO's or Real Estate Owned are houses which have been foreclosed upon and are presently held by the bank or mortgage company. This is unlike 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 able to pay with cash in hand. To top everything off, you'll accept the property completely as is. That might consist of standing liens and even current tenants that may require eviction.
A REO, conversely, is a much cleaner and attractive deal. The REO property did not find a buyer during foreclosure auction. Now the bank owns it. The bank will attend to the elimination of tax liens, evict occupants if needed and generally arrange 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 ordinarily requires sellers to make known any defects of which they are informed.
Are REO's a bargain in Austin?
It is occasionally though that any REO must be a bargain and an possibility 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 typically anxious to sell it promptly, they are also strongly interested to get as much as they can for it. When pondering 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 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 lenders 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 find out as much as you can about what they know regarding the condition of the property and what their process is for receiving offers. Since banks most commonly sell REO properties "as is", it's often prudent 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, providing documentation of your ability to pay may make your offer more attractive, such as a pre-approval letter from a lender. After you've submitted your offer, you can expect the bank to make a counter offer. From there it will be up to you to decide whether to accept their counter, or submit another counter offer. Realize, you'll be working with a process that generally involves several 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.