Buying Bank Owned Properties
There is a lot of interest in buying bank owned properties these days. All kinds of information 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 and expertise. Let’s get into some real information and together we can step through the process.
 

 What is a REO?
REO stands for "Real Estate Owned".  These are properties that have gone through foreclosure, didn’t sell in a foreclosure auction and are now owned by the bank or mortgage company. REO properties can seem like an attractive purchase but you'd better understand exactly what you're getting before you buy them or you could be sorry.
 
Remember, this is not the same as a property up for foreclosure auction. When a property is still in the pre-foreclosure and auction phase, the lender/bank is only entitled to its losses and expenses but not to a profit from the sale of the property. That changes when, following foreclosure, it becomes Real Estate Owned property by the lender or bank. Now the bank can be profit motivated. This is a huge difference between a Foreclosure and a REO. 

Is it a bargain?
You have to be very careful about buying a REO if your intent is any kind of return on your investment. It's commonly assumed that any REO must be a bargain and an opportunity for easy money.  This simply isn't true. While it's 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. Investors have to 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 bank owned properties. There are also many REO's that are not good buys and not likely to turn a profit.  Simply, the value of an investment is what it will bring at market. That’s not to say that REO properties are only for “house flippers”. Often a great REO property can be your next family home or the perfect dream home.

Ready to Make an Offer?
OK, so, we’ve found you the ideal REO and it suits you, be it for investment or as your next home.  Making an offer on a REO can be very different than a usual home sale. Here’s why:

First, banks almost always sell REO properties "as is" and you'll want to be sure to include an inspection contingency in your offer.  This gives you time to check for hidden damage and terminate or renegotiate the offer if you find something wrong.  Here’s a reality, REO properties may not have had the greatest care as prior occupants weren’t so happy to move out. 

Second, as with making any offer on real estate, you'll make your offer more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender. Remember, you will be making an offer to a bank, so stronger documents will give your offer proper weight. 

Lastly, realize you'll be dealing with a process that probably involves multiple people at the bank, and they don't work evenings or weekends or holidays (like I tend to do!!). It takes a little bit more time to receive an answer on an REO purchase than it does on a traditional [buying from a homeowner] purchase where the homeowner may give you an answer overnight. The same goes for renegotiating if damage is discovered during your inspection period.  It can sometimes take weeks where a traditional sale may take days. That doesn’t mean it’s not worth the effort.
 

Auction vs REO?
When buying a property during a foreclosure sale (at auction), 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, you'll receive the property 100% "as is".  That could include existing liens and even current occupants that need to be evicted as well as any damage or faults in the physical property.

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 REO's may be exempt from normal disclosure requirements.  In California, for example, banks are exempt from giving several standard disclosures including a Transfer Disclosure Statement, a document that normally requires sellers to tell you about any defects they are aware of. This makes sense, as most banks don’t know much about the property they now find themselves trying to sell. In general, most REOs are free of title-related issues but you still should have research and a title search done on the property. Make sure you also request an appraisal.

Buying directly from the lender/bank can be easier than purchasing a pre-foreclosure home or buying it at a foreclosure auction, although better “deals” are often more likely with the previous two, there are also bigger risks. Buying REO properties from the lender/bank can be safer but also a bit tricky. It's important not to jump right in without first knowing exactly what you're getting into as these transactions are not with out their own set of risks. It's equally important to employ the right experts to assist with your purchase.

If you have the patience, the right attitude, and experts on your side, you may find an REO property is exactly the deal you've been waiting for.

I’m ready and willing to do the work and be the leader in your REO purchase!