Buying a foreclosure or REO property in
What's an REO?
REO is Real Estate Owned. These are properties that have been through foreclosure which the bank or mortage company now owns. This is different than real estate 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 added during the foreclosure process. You must also be ready to pay with cash in hand. To top everything off, you'll accept the property completely as is. That possibly may consist of standing liens and even current tenants that may require removal.
A REO, on the other hand, is a much cleaner and attractive transaction. The REO property did not find a buyer during foreclosure auction. The bank now owns it. The bank will deal with 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. Note that REOs may be exempt from standard disclosure requirements. For example, in California, banks do not have to give a Transfer Disclosure Statement, a document that ordinarily requires sellers to reveal any defects they are aware of.
Is an REO in Victorville a bargain?
It is commonly though that any REO must be a steal and an chance for easy money. This usually isn't true. You have to be prudent about buying a REO if your intent is profit from the sell. 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 pondering 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. 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 REO's that are not good buys and not likely to turn a profit.
Prepared to make an offer?
Most lenders have a REO department that you'll work with in buying a REO property from them. Commonly 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 find out as much as you can about what they know concerning the condition of the property and what their process is for accepting offers. Since banks typically sell REO properties "as is", it's often prudent 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.
As with making any offer on real estate, providing documentation of your ability to pay may make your offer more attractive, such as a pre-approval letter from a lender. After you've made your offer, you can expect the bank to make a counter offer. At this point it will be your decision whether to accept their counter, or submit another counter offer. Realize, 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 not unusual for the process of offers and counter offers to take days or even weeks.