Buying an REO or foreclosure in Austin
WHAT IS AN REO?
REO is an abbreviation for Real Estate Owned. These are houses that have been foreclosed upon and are presently held by the bank or mortgage company. This is different than real estate up for foreclosure auction. If you buy a property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees added during the foreclosure process. You must also be prepared to pay with cash in hand. Finally, you'll receive the property one-hundred percent as is. That might consist of current liens and even current occupants that need to be kicked out.
More tidy and attractive transaction.
- An REO, on the other hand, is a more tidy and attractive transaction. The REO property was unable to find a buyer during the foreclosure auction. Now the lender owns it. The bank will see to the removal of tax liens, evict occupants if needed, and generally organize for the issuance of a title insurance policy to the buyer at closing. Do be aware that REOs may be exempt from typical disclosure requirements. For instance, in California, banks do not have to give a Transfer Disclosure Statement, a document that typically requires sellers to disclose any defects of which they are knowledgeable.
Is an REO in Austin a bargain?
It is sometimes thought that any REO must be a good deal and an opportunity for easy money. This just isn't true. You have to be prudent about buying an REO if your intent is to make money. While it's true that the bank is often anxious to sell it quickly, they are also strongly encouraged to get as much as they can for it. When contemplating the value of an 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 and selling foreclosures. But there are also many REO's that are not good buys and may not be moneymakers.
Ready to make an offer?
Most mortgage companies have an REO department that you'll work with when buying an REO property from them. Commonly the REO department will use a listing agent to get their REO properties listed on the local MLS. Prior to making your offer, you'll want to contact either the listing agent or REO department at the bank and learn as much as you can about what they know concerning the condition of the property and what their process is for taking offers. Since banks most commonly sell REO properties "as is", it's often prudent to include an inspection contingency in your offer that gives you time to check for unseen damage and cancel the offer if you find it.
Make your offer more attractive.
- As with making any offer on real estate, providing documentation of your ability to pay may make your offer more attractive, such as a pre-approval letter from a lender. After you've submitted your offer, you can expect the bank to respond with a counteroffer. Then it will be up to you to decide whether to accept their counter or make another counter offer. Understand, you'll be working with a process that most likely involves several people at the bank, and they don't work evenings or weekends. It's typical for the process of offers and counteroffers to take days or even weeks.
