Foreclosures and REO (Real Estate Owned) properties are homes that are owned by a bank or investment group. After the previous owners were foreclosed upon, these properties were typically purchased, or retained, at auction by a bank or investment group. The condition of these homes can vary quite a bit. They will all be vacant, and often times the utilities will be off and the yards and/or pools will be in need of maintenance. The interiors can range from perfectly normal condition to very poor condition – meaning that appliances, fixtures or doors may be missing and there may be broken windows and holes in the walls. Due to condition, some Foreclosures may not qualify for FHA or other conventional loan programs.
Purchasing from a bank or investment group is typically very straightforward. It may take a week or so to receive a response to an offer, but once your offer is accepted, we would move forward just like a normal transaction.
Some Differences in Buying a Foreclosure or REO Property vs a traditional sale:
- These properties are frequently priced below market value, so it is common to find yourself in a multiple offer situation where the sale price ends up being higher than the list price.
- The bank will dictate many terms of the contract. Here are the most common items:
- The Escrow and Title Insurance providers will be of their choosing.
- The bank may require that you be pre-approved by a lender of their choosing.
- The timeframes for your inspection and other contingencies will likely be shortened to 7-12 days instead of the standard 17 days.
- The bank may not agree to make any repairs to the property, including termite repairs
- The bank may not agree to provide you with a Home Protection Plan.
- The bank may refuse to pay transfer fees that are typically covered by the seller. For instance: HOA Document and Transfer Fees, County Transfer Tax and sometimes they even require you to pay their portion of the Escrow and Title fees.
- The bank’s addendum will require that you pay a penalty for each day that you may be late in closing escrow. This is often around $100 per day
- Banks typically will not accept an offer that is contingent on the sale of another property.
All in all, it’s possible to get a nice buy when purchasing a Foreclosure or REO. However, you may need to pay a lot more in out-of-pocket expenses than you would with a traditional sale.