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 making 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.   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 the 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.  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 for an investment purchase. 

Ready to make an offer?
The banks have hired a listing agent to get their REO properties listed on the local MLS.  Before making your offer, you’ll want to contact the listing agent to find out about what they know about the condition of the property and what their process is for receiving offers.  Keep in mind, the listing agent does not have any history of the property.  It's typical that the listing agent only has knowledge of what can be plainly seen.  Since banks almost always sell REO properties “as is”, you’ may want to be sure to use your best judgement and to possibly include an inspection contingency in your offer that gives you time to check for hidden damage.  Proof of funds and/or financing will be required with any offer in order for the lister to present to the bank.  After you’ve made your offer, you can usually 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.