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 inaccurate, 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 to make 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.  This is not the same as a property up for foreclosure auction.  Purchasing an REO is a very straightforward transaction.  The bank sees to the removal of tax liens, evicts occupants, if needed, and generally prepares 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 as they have limited knowledge of the property's history or condition.  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 is commonly assumed that any REO must be a bargain and an opportunity for easy money.  This simply isn't’t true.  While it’s true that the bank is typically inclined to sell it quickly, they are also strongly motivated to get as much for it as the market will support.  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. 

Ready to make an offer?
Typically the REO department will use a listing agent to market their REO properties and list them on the local MLS.  Before making your offer, you’ll want to contact the listing agent  and find out as much as you can about the condition of the property and what their process is for receiving offers.  Since banks almost 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.  A good Realtor may be able to assist you with ways to get some repairs completed after the close of escrow.  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 proapproval 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 several days.