REO Questions and Answers
What you need to know, BEFORE you purchase an REO Property.
What is REO?
REO is an acronym for Real Estate Owned. It is property owned by a financial institution, in which property was acquired through foreclosure after an unsuccessful sale at a foreclosure auction. Many times people refer to these properties as “foreclosures”.
What is the difference between a foreclosure and a REO?
Foreclosure is the process that the lender went through to obtain the property. Although it is common (even among real estate professional), to say “foreclosures for sale” or “I want to purchase a foreclosure”, it is actually an incorrect use of the word. The more accurate way of referring to a bank REO is: foreclosed property, or bank owned, or corporate owned. It really is a matter of wording…. I am sure more people are more familiar with the word foreclosure. Use it as you wish…
How do I find bank owned properties for sale?
Most lenders contract with a real estate agent in the area where the property is located. Among other responsibilities, the Agent is required to offer the property for sale through the MLS( multiple listing service). If you wish, you can also be added to our e-mail distribution list and receive weekly reports on every new Bank Owned property listed on the MLS.
Can I see inside the Bank Owned property prior to making an offer?
Yes, if you find it on this site and would like for us to show you the property, please contact us. We will contact you to schedule an appointment. If you are currently working with a REALTOR, please contact them and they can make arrangement to show you the property.
Is it true that you always get a good deal when buying REO properties?
NO, NO, NO. It is not always true. Remember that our job as the Realtor working for REO Owner, is to sell the property for the most money possible in the shortest amount of time. There are times that good purchase opportunities do become available, but it is not the rule. Generally this happens when there are code enforcement issues, financing issues and other issues that increase the risk for the Buyer, thereby decreasing the value. If you are an experienced investor and have the skill and knowledge, then you may create some value.
What are the benefits to purchasing REO Properties?
The property is vacant which allows you to do through properties inspections
The REO Owner may offer special financing options/terms
The REO Owner is not emotionally attached to the property
The Sale is not contingent on lengthy 3rd party approvals (like short sales)
Quick Closing. Generally ready to close ASAP.
Do the Bank Owned properties have insurable title?
Yes, during and after the foreclosure process the Bank contracts with a local title agency or attorney to provide marketable title. The Bank will convey title to the buyer through a Special Warrant Deed. .
Can I finance the purchase of bank owned properties?
Yes, providing that the property meets your lender’s property condition requirements. Some properties obtained in foreclosure have major physical condition issues, which may prevent it from qualifying for financing. Properties that have code violations, structural issues, multiple broken windows, boarded up windows, Security bars (without escape fire escape doors), major roof, major plumbing, major electrical, problems may not qualify for financing. There are special loan programs that allow for the repairs to be completed after closing. Speak to your loan officer regarding these options.
Is a preapproval letter required?
Yes, the letter must include: The name of the Buyer, as presented on the offer, the amount of the loan approval, the amount of the purchase price approval, the type of financing and all conditions to close the loan. Also, it must include the name and contact information of the person who signed the pre-approval.
What does “proof of funds” mean?
In addition to a pre-approval letter, it is helpful ( and sometimes required) to show the seller that you have the down payment available in cash (or another liquid account). Also if you intend on paying cash for the property, you will need to prove that you have the available fund for the entire purchase price.
Will the REO Owner pay for Buyer’s Closing Cost?
Yes, in many cases the seller may be open to pay closing cost for the Buyer.
Can the Buyer select the closing agent/title company?
No, in most cases, the REO Owner will select the closing agent and generally, they pay for the Owner’s Title Insurance Policy. The Buyer can however have an attorney review the document and have the attorney present at the closing
Will the seller provide a warranty on the condition of the property?
No, the properties are sold AS-IS, which means that the REO Owner will not make any repairs to the property AND will not provide any concession for the condition of the property?
May I have the property inspected?
Yes, in some cases the REO Owner may not allow for a due diligence/inspection period, but in most cases, the REO Owner will allow up to 10 days for inspections. We do recommend having the property inspected PRIOR to the offer being written. This will provide the buyer with a strong negotiation position and insure a smoother transaction. The REO Owner will not renegotiate the sale price due to the results of property inspection results
Will the REO Owner provide a seller's disclosure?
NO, because the property was obtained through foreclosure the REO Owner does not have information about the condition of the property or historical property condition information (i.e.: when the roof was replaced). General property inspections are not completed by the Seller. You should not rely on the outward appearance of the property or any claims made by a REALTOR. You should hire a professional property inspection company prior to making an offer, or within the inspection period, if any.
Do you accept a letter of intent?
Our agreement with our REO Owner Client does not permit letter of intents. All offers must be submitted on the REO Owner approved contracts/addendums.
What is Earnest Money Deposit?
Earnest Money Deposit is a sum of money that the Buyer places in Escrow as “good faith”. If the Buyer defaults on the terms of the contract the Seller has the right to make a claim on the monies. Each contract has different terms regarding the earnest money. You should consult with a real estate attorney BEFORE signing a contract.
How much Earnest Money Deposit is required?
The minimum deposit requirement varies from one REO Owner to another. Generally it is no less than $1000.00, but can be as high as 5% of the purchase price, or more.
Do I need any special addenda to submit an offer?
No, In most cases, special addenda are not necessary to submit your offer. Addenda and exhibits will be added as a seller’s “Counter-offer Addendum”
How soon will I receive a response to my offer?
Typical turnaround occurs within 24-48 hours, but could be longer.
Will I get a writing response to my offer?
No, not from the REO Owner. Generally the REO Owner will not sign any documents until all of the terms have been agreed to, all documents are signed by the Buyer and sent to the REO owner. Once Received the REO Owner takes 24-48 hours to sign and return the executed contracts.
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