4 Savvy Tips For Buying REOs And Foreclosures

The acronym REO stands for “real estate owned” property. This is very similar to a foreclosure. The difference is that a foreclosure is purchased by another buyer on the courthouse steps while an REO reverts back to the mortgage lender. For the purpose of this discussion, we’ll use both terms interchangeably.

Some homebuyers avoid these types of properties while others actively look for them. The former assume that foreclosures are always in disrepair, and thus pose more problems than they are worth. The latter realizes there are potential bargains that await savvy buyers since the banks are motivated to sell the inventory. There is truth to both sides.

This article will provide four tips for submitting offers for bank-owned homes for sale. There’s a lot of competition, so standing apart from the pack is important. The following suggestions will help you present a realistic offer that gets the attention of the lender, and improves the odds it will be accepted.

1 - Find Out The Lender’s Original Price

Many people presume banks and mortgage lenders are willing to take a steep loss on their foreclosed properties just to move the inventory. As a result, they submit offers that are too low. Lenders usually want to recover the amount owed to them, and are willing to hold properties until they receive an appropriate offer.

Have your agent uncover the price paid by the lender; it should be noted on the deed. Determine the amount of the loans owed to the lender, and make sure your offer at least matches it.

2 - Look At The REO Agent’s Sales History

There are a few noteworthy details to know about the agents working for the banks. First, they usually focus their attention on real estate owned properties. Second, they make money by selling a high volume of foreclosures. Third, because of their volume, they tend to treat each transaction in a similar fashion.

These details are important because they provide clues regarding how to craft your offer. Have your agent pull a history of the foreclosures sold by the lender’s agent over the last four or five months. Look for trends. For example, suppose the listing agent sold most of the foreclosed properties for 3 percent above the listed prices. This suggests that offering less than 3 percent could result in your offer being discarded.

3 - Get Preapproved For A Loan Prior To Submitting An Offer

Preapproval from a lender is often mistaken for prequalification. Being prequalified does not mean you have been assured financing. It simply means your bank has determined that you are likely a creditworthy borrower. When you are preapproved, your bank is essentially saying it has verified your credit, employment, and references.

Ask your bank to draft a letter stating as much. Then, give this letter to the listing agent to present to the bank selling the REO. The letter will make your offer appear more attractive than the offers of those who lack preapproval letters.

4 - Absorb The Cost Of Inspections

There are cases in which the lender will agree to pay for a home inspection, but most will expect the buyer to absorb the cost. Remain open to doing so. Your offer will seem more appealing.

Keep in mind that if the inspection uncovers major problems with the plumbing, roof, foundation, or electrical system, you can lower your offer. Most banks selling foreclosures are receptive to renegotiating the price in such circumstances.

The key to submitting successful offers for REOs and foreclosures is to know the amount the lender needs to receive without overpaying for the property. There are many potential problems - such as an appraisal that is lower than the lender’s minimum - that can derail this process. Be patient, and willing to take steps that make your offer stand apart from the rest of the pack.

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