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 available about the subject if you look for it.  Actually, even if you're not looking for the information, it may find you.   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, especially in today's real estate market.  Also, if you're in the market to buy an REO/Foreclosure home for your family to live in, you'll need the knowledge at your disposal of these homes so you don't end up with more problems that you can handle.

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 or sheriff's sale.  When buying a property during a foreclosure sale/sheriff's sale, you must be the highest bidder in the process, similar to a real auction.  The lender(s) will typically be there because they want to ensure that they have interest in the property after 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”, after the redemption period.  What is the redemption period?  In Minnesota, we have a 6 month redemption period standard for all owner occupied homes.  If the home is not owner occupied, the lender may take court action to shorten the redemption period to 5 weeks.  During this redemption period, the owner has the right to "redeem" the home and bring it out of foreclosure.  A REO, by contrast, is a much “cleaner” and attractive transaction.  The REO property did not find a buyer (or the lender bought it for themselves) 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. 

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.  I can help you with that!  I am an expert at finding the appropriate comparables and have a solid understanding on what it takes in dollars to remodel if need be.  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 I'll work with on your behalf when buying a REO property from them.  Typically the REO department will use a listing agent to get their REO properties listed on the local MLS.  Before making your offer, you’ll want to contact me to find out as much as you can about what I know about the condition of the property and what the bank's process is for receiving offers.  Since banks almost always sell REO properties “as is”, you’ll want to be sure and include an inspection contingency in your offer (I will also take care of that for you) that gives you time to check for hidden damage and terminate the offer if you find it.  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.  After you’ve 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, you’ll be dealing with a process that probably involves multiple people at the bank, and they don’t work evenings or weekends.  It’s not unusual for the process of offers and counter offers to take days or even weeks.