Bank Owned Properties - (REO / Foreclosed Homes)
Buying bank owned properties
There is a lot of interest in buying bank owned properties these days. A lot of information, some good and some bad, is floating around about the subject. Often the information offered is for sale, with the promise that you can make a lot of money with little effort once you know 'the secret formula'. The fact is that there are no secrets, and to make money does require effort.
What?s an REO?
REO stands for "Real Estate Owned". These are properties that have gone through foreclosure 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 may not have access to view the property before bidding at the auction and 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 and we'll be able to view the property. 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.
Is it a bargain?
It's commonly assumed that any REO must be a bargain and an opportunity for easy money. This simply isn't true. You have to be very careful about buying a REO if your intent is to make money.
- While it's true that the bank is typically anxious to sell it quickly, 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.
- Be aware that some REO properties do have deed restrictions specific to investors that require the investor to hold the property for a minimum of three months before selling.
- 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 not likely to turn a profit.
- Sometimes there is a better chance of turning a profit when buying and holding property-such as a rental, more so than trying to "flip" a property.
Ready to make an offer?
Most banks have a REO department that we'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.
- Remember that the listing agent on an REO property is working soley for the bank and is only interested in the best interest of the bank who will provide them with more listings.
- Ideally, you should hire your own buyer's agent who is experienced with the REO process. There are many obstacles one can come accross in the purchase process of REO property. We are experienced in the REO market and can provide you the detailed guidance you need to successfully invest in these properties. Sue has earned the Certified Distressed Property Expert (CDPE) designation and Ron has completed the Short Sale & Foreclosure Resource (SFR) certification.
- Utilize your buyer's agent to help you find out as much as you can about the property and what the particular banks process is for receiving offers.
- 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.
- Offers cannot be submitted without an approval letter from a bank or mortgage company-or proof of funds to purchase the property with cash.
- After you've made your offer, you can expect the bank to either accept your offer, make a counter offer or possibly reject your offer.
- Expect to wait a minimum of three and up to seven business days to get a response from the bank. Once you have a response from the bank 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 days or even weeks.