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.

What’s 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, you’ll 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 where the bank takes ownership of the property.  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 North Carolina, for example, banks are exempt from giving a Property Disclosure Statement, a document that normally requires sellers to tell you about any defects they are aware of.

Is it a bargain?
It’s commonly assumed that any REO must be a bargain and an opportunity for easy money.  This simply isn’t true.  You have to be very careful about buying a REO if your intent is to make money off of it.  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 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 REO’s that are not good buys and not likely to turn a profit. 

Ready to make an offer?
Most banks have a REO department that typically uses a listing agent to get their REO properties listed on the local MLS.  Before making your offer, you’ll want to contact your own real estate agent and find out as much as you can about the property and what the process is for receiving offers.  Since banks almost always sell REO properties “as is”, you’ll want to be sure to inspect the property carefully prior to making an offer.  Banks also require documentation of your ability to pay, such as a pre-approval letter from a lender or proof of funds.  After you’ve made your offer, the bank will make a counter offer, accept your offer, or reject your offer without a counter offer. In a multiple offer situation, the bank will generally accept the highest offer without giving the opportunity for other offerors to counter. Keep this in mind and always present your "highest and best" offer when dealing with foreclosures.  Also, keep in mind, you’ll be dealing with a process that probably involves and listing agent and multiple people at the bank who don’t work evenings or weekends.  It’s not unusual for the process of offers and counter offers to take days or even weeks.