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REO Buying Tips:
1) Many banks list foreclosed homes on their Web sites. Most of those homes will also be listed with a real estate agent.
2) Get preapproved by a qualified lender. Many banks won't even consider your offer unless you have got a lender's OK.
3) Consider hiring a real estate agent to negotiate the deal rather than dealing directly with a bank yourself. Find an agent with experience in bank-owned properties.
4) If the listing is relatively new, the bank may not knock much off the asking price. You'll have greater bargaining room with listings that have been sitting longer.
5) Don't expect to lowball the price and get the house. Most bank-owned houses sell within 10 percent to 20 percent of the listing price.
6) Be patient. It may take longer than a traditional home sale to get a response to your offer. And banks don't respond during the weekend.
7) Know what you're buying: Most bank-owned homes are sold "as is." Usually, the bank will not pay for repairs, upgrades or home inspections. Look carefully for damages or lack of home maintenance.
8) The bank calls the shots. The sales contract may omit customary real estate terms or include others you are not familiar with. Once the bank accepts your offer, it's usually final.
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REO vs. Foreclosure
An REO (Real Estate Owned) is a property that goes back to the mortgage company after an unsuccessful foreclosure auction. You see, most foreclosure auctions do not even result in bids. After all, if there was enough equity in the property to satisfy the loan, the owner would have probably sold the property and paid off the bank. That is why the property ends up at a foreclosure or trustee sale.
Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property "reverts" to the bank. It becomes an REO, or "real estate owned" property.
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REO Properties For Sale
The bank now owns the property and the mortgage loan no longer exists. The bank will handle the eviction, if necessary, and may do some repairs. They will negotiate with the IRS for removal of tax liens and pay off any homeowner’s association dues. As a purchaser of an REO property, the buyer will receive a title insurance policy and the opportunity to investigate the property.
A bank owned property might not be a great bargain. Do your homework before making an offer. Make sure that the price you pay (if you’re successful) is comparable to other homes in the neighborhood. Consider the costs of renovation, including time to complete them. Don’t get caught up in a ‘bidding war’ and pay over market value. It’s an old myth that “foreclosures” are a bargain.
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