Guide to Buying Foreclosure (REO) Property 

What’s an REO?

We see the term REO a lot in the market today.  Do you know what it stands for?  It means “Real Estate Owned”.  REO's are properties that have gone through Foreclosure and are now owned by the Bank or Mortgage Company.   They are marketed through contracted Real Estate Agents and are managed by a go between Company called an Asset Manager.  The Asset Managers are usually Out of State Real Estate Brokerages that have agreed to act as a go-between for the Bank and the contracted Real Estate Agent in the local marketplace.   

It is a common misconception by many Buyers that a REO is always a bargain.  While this is sometimes the case, it is not always true.  Prices on REO properties are usually below market and the Bank is highly motivated to move them quickly.  However you need to study comparable properties in the neighborhood to determine if the offered price allows for the cost to repair or upgrade the property without exceeding the value of other properties in the area.  The potential to turn a profit or acquire a nice home at a great price exists for REO properties, but there are many factors that must be considered when making a buying decision.   Consult with your REALTOR® or an Attorney before entering in to any agreement to be sure you are making the best decision for your individual situation.

Ready to make an offer?

Before making your offer, if you haven't already done so, you want to contact an Agent to act on your behalf.  Since banks almost always sell REO properties “AS IS”, "WHERE IS"  you want to be sure that your right to conduct all Inspections you deem necessary are protected.  Most Banks encourage you to do this, but they will often shorten the time frame to get them completed from the time frame defined in the Original Offer to Purchase.  

As with making any offer, you will want to include documentation proving your ability to pay for the property.  You will want a Pre-approval Letter from your Lender or be prepared to provide Proof of Funds if you are paying cash for the Property. 

After you’ve made your offer, you can expect the bank to make a Counter to your Offer.  They may utilize worksheets to negotiate price or terms until you can come to an tentative agreement.  The process can take several days to finish.  Once the tentative agreement has been reached the Bank will provide a Bank Addendum stating the final terms that the Bank will accept.  Do not be surprised to find changes in this Addendum that were not agreed to or discussed.   There is one common element in all Bank Addendums, it will weight heavily in the Bank's favor, not the Buyer's.  The Bank Addendums vary from Bank to Bank and are sometimes very difficult to interpret.  Once again you will want to consult with a Professional to determine your rights under the terms of the agreement before you accept the Bank's Terms for the sale.    

What you need.   

In a word, "Guidance".  If you are new the REO Marketplace you need someone to represent you!   Having your own Agent working on your behalf will provide you with the comfort of knowing there is someone is truly looking out for your interests.  Someone to go to for advice or direction, someone to coordinate inspections, appraisals, and provide information you need to make educated decisions throughout the process.  You need someone to look out for you.  Remember, the Listing Agent represents the Seller, you need someone who is working for you as an exclusive Buyer's Agent.     

The Bottom Line. 

REO Properties can be a good opportunity for Home Ownership or Investment.  You just need to be prepared that purchasing a REO can be much more difficult and stressful than purchasing another type of property.  You can find some very attractively priced properties in the REO marketplace.  But, you need to be prepared that there are some obstacles to overcome that are not typical to a Real Estate transaction.  Even experienced Buyers need the Guidance of professionals to make good decisions when buying REO property.  

Need Help?  Give me a call.  I am here to guide you along the path to homeownership whether it is a Bank Owned property or a property offered by a retail Seller. 

Sandra Paulow, Associate Broker, GRI 

Your High Country REALTOR®

(928) 242-0300