Buying bank owned properties

There is a lot of interest in buying bank owned properties at a short sale these days. A lot of information, some good and some bad, is floating around about the subject.   

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.  Do be aware that REO’s may be exempt from normal disclosure requirements.  In California, for example, banks are exempt from giving a Transfer 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 is not true.  You have to be very careful about buying a REO.  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.  And they're a slow as molasses to get back to your agent regarding an offer. 

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. 

Ready to make an offer?
Most banks have a REO department.  You’ll work with the buying agent when making an offer to purchase a REO property from the bank.  Since banks almost always sell REO properties “as is”, you’ll want to be sure and include an inspection contingency in your offer that gives you time to check for hidden damage and terminate the offer if you find it.  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.