An REO (Real Estate Owned) is a property that goes back to the mortgage company after an unsuccessful foreclosure auction.
Foreclosure auctions begin with a minimum bid that includes the loan balance, any accrued interest, plus attorney's fees and any costs association with the foreclosure process. In order to bid at a foreclosure auction, you must have a cashier's check in your hand for the full amount of your bid. If you are the successful bidder, you receive the property in "as is" condition, which may include someone still living in the property. There may also be other liens against the property.
Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property "reverts" to the bank. It becomes an REO, or "real estate owned" property.
Each bank/lender works differently, but they all want to get the best price possible and have no interest in "dumping" real estate cheaply.
Once an offer is made to purchase, banks generally present a "counter-offer." It may be at a higher price than you expect, but they have to demonstrate to investors, shareholders, and auditors that they attempted to get the highest price possible. You should plan to counter the counter-offer.
Your offer or counter-offer will probably have to be reviewed and approved by several individuals and companies. Even once an offer is accepted, the bank may insert wording like “..subject to corporate approval with 5 days."
Banks always want to sell a property in "as is" condition.
Before making an offer, have your Realtor contact the the listing agent and ask the following:
- Are there any inspection reports?
- What work has the bank agreed to?
- Is there a special "as is" form?
- How long does it take the bank to accept an offer?
- How does your agent deliver the offer?
Since there is no face-to-face presentation to the bank, provide the listing agent with a pre-qualification or better yet, a pre-approval letter and buyer biography. Make your offer easy to accept.
NOW, GO AND GET YOURSELF A DEAL!!!