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 currently held by the bank or mortgage company. This differs from real estate 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. The buyer must also be ready to pay with cash in hand. And on top of all that, you'll accept the property entirely as is. That may consist of current liens and even current occupants that may require removal.
A REO, by contrast, is a much neater and attractive option. The REO property did not find a buyer during foreclosure auction. The lender now owns it. The lender will deal with 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. Do be aware 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 ordinarily requires sellers to tell you about any defects they are informed of.
Is an REO in Murfreesboro a bargain?
It is occasionally believed that any REO must be a steal and an chance for easy money. This isn't necessarily true. You have to be very careful about buying a REO if your intent is make money. While it's true that the bank is usually anxious to sell it quickly, they are also strongly motivated to get as much as they can for it. When contemplating 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 foreclosures. However there are also many REO's that are not good buys and not likely to turn a profit.
All set to make an offer?
Most banks have a REO department that you'll work with in buying a REO property from them. Normally 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 find out as much as you can about what they know about the condition of the property and what their process is for taking offers. Since banks almost always sell REO properties "as is", you may want to include an inspection contingency in your offer that gives you time to check for unknown damage and withdraw the offer if you find it.
As with making any offer on real estate, you'll make your offer more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender. After you've submitted your offer, you can expect the bank to respond with a counter offer. From there it will be your choice whether to accept their counter, or make another counter offer. Understand, you'll be working with a process that probably involves a group of people at the bank, and they don't work evenings or weekends. It's quite common for the process of offers and counter offers to take days or even weeks.