“REO” stands for Real Estate Owned. These are properties which have been through foreclosure and are now owned by the bank or mortgage company. This is unlike a property up for foreclosure auction.
If you buy 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. The buyer must also be prepared to pay with cash in hand. And on top of all that, you’ll accept the property completely as is. That might comprise of current liens and even current occupants that may require eviction.
A bank-owned property, on the contrary, is a much cleaner and attractive deal. The REO property was unable to find a buyer during foreclosure auction. The bank now owns it. The bank will take care of the removal of tax liens, evict occupants if needed and generally organize for the issuance of a title insurance policy to the buyer at closing.
Note that REOs may be exempt from standard disclosure requirements. In California, for example, banks do not have to give a Transfer Disclosure Statement, a document that normally requires sellers to disclose any defects of which they are knowledgeable. By hiring me, you can rest assured knowing all parties are fulfilling Florida state disclosure requirements.
It’s sometimes presumed that any REO must be a good buy and a chance for guaranteed profit. This simply isn’t true. You have to be very careful about buying a repossession if your intent is to make money off of it. Even though the bank is usually eager to sell it quickly, they are also looking to minimize any losses.
Look closely at the listing and sales prices of competing homes in the neighborhood when considering the purchase of an REO. And factor in any repairs or upgrades necessary to prepare the house for resale or moving in. There are bargains with potential to make money, and many people do very well flipping foreclosures. Still there are also many REOs that are not good buys and not likely to turn a profit.
Most lenders have a department dedicated to REO that you’ll work with while buying REO property from them. Typically 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 learn 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 almost always sell REO properties “as is”, it may be in your best interest 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, providing documentation showing your ability to secure financing may make your offer more attractive, such as a pre-approval letter from a lender.
After you’ve presented your offer, you can expect the bank to respond with a counter offer. Then it will be your decision whether to accept their counter, or submit another counter offer. Be aware, you’ll be contending with a process that most likely involves a group of people at the bank, and they don’t work evenings or weekends. It’s typical for there to be days or even weeks of negotiating back and forth. I am used o working around the schedules of this type of seller and will do everything possible to ensure there are no undue delays.