What To Look For When Purchasing Reo (real Estate Owned) Property

To get the best deal out of your purchase, spend a little time to understand the ins and outs of closing on an REO home. Most REOs are still owned by the bank or mortgage company if it is not sold during an auction. This happens more than you think, since many auctions do not even get bids.

Why? Simply because of the state of the economy. Many people cannot afford to pay the amount up front and since most auctions demand a check in hand for the full amount, including fees or costs, most REO properties simply revert to the bank. After all, no one wants to take on someone else’s fees, especially if the property is a) heavily mortgaged or b) tax liened.

If you are thinking about diving in and making an investment, get the best value for your money by knowing what you are getting into.

What Happens After

If you buy an REO home, it usually comes with a title insurance policy and an opportunity to inspect. Get the best deal by conducting a home inspection before you even sign any papers. Although by this time the bank has probably taken care of the fees or liens or mortgage, there still may be hidden costs when it comes to:

• Renovation or repairs
• Hidden property damage (such as leaking pipes, foundation issues or structural problems)
• Time (the house may not be livable when you move in)
• Paying over the market price

When you make an offer, expect that the bank will make a counter-offer, usually at a higher price. This is usually a gesture of good faith and a well-worded counter to the counter offer goes a long way.

Knowing the condition of the property, general market values and how an REO property works can save you a load of cash if you know how to bargain. Include that and make sure that you are able to inspect and see the house before the sale goes through. Including clauses for unanticipated damage or any work that the bank will agree to.

Going over forms or contracts to look for hidden clauses will help you get the best deal possible. After all, you do not want to be stuck with a home that needs repairs that cost way more than you bargained for. It defeats the purpose and will eat into your savings. You or your real estate broker should have gone over inspection reports (if any), as is forms that banks will furnish and the length of time it takes to deliver the offer.

The good part here is banks do want to get rid of REO properties but unlike HUD or preforeclosed homes, they want to make the best possible deal.

You may also be dealing with other bidders or other offers for your dream home—or you may be dealing with ones who do not exist. Be firm and prepare your counter offer and you should get the best deal and great new home without paying more than you are prepared to.

By: kelsheikh

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