Buying REO property or a foreclosure?


	Purchasing a bank-owned property is not something to be taken casually. If you have any questions about this type of real estate purchase, give me a call (619-566-ADAM) and we can discuss it in detail. While it may sound like a great deal, if you aren't familiar with this type of transaction, you may be getting more than you bargained for.

What's an REO?

"REO" is short for Real Estate Owned. These are properties which have been foreclosed upon that the bank or mortgage company currently holds. This is unlike real estate up for foreclosure auction. Adam Mallory REeBroker DRE #01727909 has experience to share with foreclosures and bank owned properties in San Diego, California

Adam Mallory REeBroker DRE #01727909 has experience to share with foreclosures and bank owned properties in San Diego, California

If you buy 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 willing to pay with cash in hand. Finally, you'll get the property 100% as is. That possibly may consist of standing liens and even current occupants that need to be thrown out.

A bank-owned property, conversely, is a more tidy and attractive deal. The REO property did not find a buyer during foreclosure auction. The bank now owns it. The lender will take care of 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.

Take notice that REOs may be exempt from standard disclosure requirements. In California, for example, banks are exempt from giving a Transfer Disclosure Statement, a document that ordinarily requires sellers to make known any defects of which they are knowledgeable.

Are REO properties a bargain?

It's sometimes presumed that any REO must be a good deal and an opportunity for guaranteed profit. This isn't necessarily true. You have to be cautious about buying a REO if your intent is profit from the sale. Even though the bank is usually eager to sell it promptly, they are also motivated to minimize any losses.

Adam Mallory REeBroker DRE #01727909 has experience to share with foreclosures and bank owned properties in San Diego, California

When pondering the value of a foreclosure, 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. It is possible to find REOs with money-making potential, and many people do very well buying and selling foreclosures. Still there are also many REOs that are not good buys and not likely to turn a profit.

Prepared to make an offer?

Most mortgage companies have staff dedicated to REO that you'll work with when buying REO property from them. Usually 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 learn as much as you can about their knowledge concerning the condition of the property and what their process is for accepting offers. Since banks usually sell REO properties "as is", you may want to include an inspection contingency in your offer that gives you time to check for hidden damage and withdraw the offer if you find it. If, as a buyer, you can provide documentation demonstrating your ability to pay, such as a pre-approval letter from a lender, your offer will be more attractive and likely be accepted. (This is generally true for any type of real estate offer.)

After you've submitted your offer, you can expect the bank to make a counter offer. From there it will be your choice whether to accept their counter, or make another counter offer. Be aware, you'll be working with a process that most likely involves multiple people at the bank, and they don't work evenings or weekends. It's not unusual for there to be days or even weeks of negotiating back and forth.