Buying a foreclosure or REO property in

What's an REO?

REO's or Real Estate Owned are properties that have gone through foreclosure which the bank or mortage company presently owns. This differs from 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 accumulated during the foreclosure process. The buyer must also be willing to pay with cash in hand. To top everything off, you'll accept the property completely as is. That possibly could include prevailing liens and even current residents that need to be put out.

A REO, conversely, is a more tidy and attractive deal. The REO property did not find a buyer during foreclosure auction. The lender now owns it. The bank will handle 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. Note that REOs may be exempt from typical disclosure requirements. For example, in California, banks are not required to give a Transfer Disclosure Statement, a document that normally requires sellers to reveal any defects they are knowledgeable of.

Is an REO in Cary a bargain?

It is sometimes believed that any REO must be a good deal and an opportunity for easy money. This just isn't true. You have to be cautious about buying a REO if your intent is to make money off of it. While it's true that the bank is usually anxious to sell it soon, 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. The bargains with money making potential exist, and many people do very well buying and selling foreclosures. But there are also many REO's that are not good buys and may lose money.

Prepared to make an offer?

Most banks have a REO department that you'll work with while 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 learn as much as you can about what they know about the condition of the property and what their process is for receiving 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 unseen damage and cancel 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. Once you've made your offer, you can expect the bank to counter offer. Then it will be your choice whether to accept their counter, or submit another counter offer. Understand, you'll be contending with a process that usually 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.