Buying bank owned properties
There is a lot of interest in buying bank owned properties these days. A lot of information, some good and some bad, is floating around about the subject.   Often the information offered is for sale, with the promise that you can make a lot of money with little effort once you know the secret formula.  The fact is that there are no secrets, and to make money does require effort.

Whats an REO?
REO stands for Real Estate Owned.  These are properties that have gone through foreclosure and are now owned by the bank or mortgage company.  This is not the same as 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.  And on top of all that, youll receive the property 100% as is.  That could include existing liens and even current occupants that need to be evicted.  A REO, by contrast, 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 see to 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.  Do be aware that REOs may be exempt from normal disclosure requirements. 

Is it a bargain?
Its commonly assumed that any REO must be a bargain and an opportunity for easy money.  This simply isnt true.  You have to be very careful about buying a REO if your intent is to make money off of it.  While its true that the bank is typically anxious to sell it quickly, they are also strongly motivated to get as much as they can for it.  When considering 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 foreclosures.  But there are also many REOs that are not good buys and not likely to turn a profit. 

Ready to make an offer?
Our office specializes in selling REO properties.When you are in the market to purchase REO properties you want to work with an agent who is familiar with the way banks sell REO properties and how to negotiate offers on your behalf. I have been in the REO Business for over six years and I  have worked with all types of buyers from million dollar investors to first time home buyers. As with making any offer on real estate, youll make your offer more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender or a proof of funds for cash offers. The bank also, usually, makes the buyer responsible for complying with and paying for all of the village inspections and requirements so you want to factor that into your price when putting an offer together. After youve made your offer, you can expect the bank to make a counter offer.  Then it will be up to you to decide whether to accept their counter, or offer a counter to the counter offer.  Realize, youll be dealing with a process that probably involves multiple people at the bank, and they dont work evenings or weekends.  Its not unusual for the process of offers and counter offers to take days or even weeks. Once a price has been agreed upon, the bank will issue "addendums" which are basically additional pages of the contract that are prepared for banks by thier attorney that are basically the same for all of that particular banks properties regardless of the condition. These in general state that you are buying the property "as-is", "where-is" and are designed to basically cover the banks butt. Once you get the addendums, the bank usually gives you 48 hours to get the addendums back to them with the earnest money or the offer is considered void. One important thing to remember when putting an offer together is to be sure you are 100% certain you want the property. One way to ruin a relationship with an agent that is in the REO business is to get a reputation for submitting offers and then not going through with them. It is a nitch market and our reputation and ability to close deals goes a long way.