Buying a foreclosure or REO property in
What's an REO?
REO means Real Estate Owned. These are properties that have been through foreclosure and are presently held by the bank or mortgage company. This is different than a property 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 accumulated during the foreclosure process. You must also be prepared to pay with cash in hand. To top everything off, you'll accept the property entirely as is. That could comprise prevailing liens and even current tenants that may require eviction.
A REO, by contrast, is a much cleaner and attractive option. The REO property didn't find a buyer during foreclosure auction. The bank now owns it. The bank 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 normal disclosure requirements. In California, for example, banks do not have to give a Transfer Disclosure Statement, a document that usually requires sellers to tell you about any defects they are knowledgeable of.
Is an REO in Fort Walton Beach a bargain?
It is commonly presume that any REO must be a good buy and an opportunity for easy money. This isn't always true. You have to be very careful 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 encouraged 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 and selling foreclosures. Still there are also many REO's that are not good buys and may lose money.
Prepared to make an offer?
Most mortgage companies have a REO department that you'll work with when buying a 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 what they know regarding the condition of the property and what their process is for getting offers. Since banks usually sell REO properties "as is", you'll want to be sure and include an inspection contingency in your offer that gives you time to check for unseen damage and withdraw the offer if you find it.
As with making any offer on real estate, your offer may be more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender. After you've presented 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 working with a process that most likely 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.