Helpful Information

Buying Forclosures/REOs in 2009

"Wendy" Benavides, Realtor®

Legacy Real Estate & Associates

(formerly known as Remax Executive)

Call Direct:     (209)239-1985    or   (925)784-4062

Contact me for a list of homes currently available in your area.

Are you pre-approved yet?

 Knowing you're qualified isn't good enough when buying real estate - especially when you're buying it from the bank! Get Pre-Approved before you start looking at homes! Allow 5-10 days to get fully approve. Getting pre-qualified isn't good enough. You know what they say about Ducks, they all have to be lined up in a row to go anywhere. Well, this is where the line starts. Contact me for no cost no obligation lender referral.

FYI - I make a point of Not originating loans, being a Realtor® is a full time job. The lenders I'm comfortable referring are full time lenders. I expect them to give good honest service at the best rates currently available. This helps make sure you get the best loan you need, instead of the best loan available to your agent and avoids the appearance of a conflict of interest and confusion over loyalties.

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 bad, 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. Most REOs need repairs. Many banks won't provide any inspections. Be sure you allocate funds for your inspections. Banks don't have the same Disclosure requirements as you & I. Only after you determine the cost of repair (stuctural and/or cosmetic) will you be able to determine if the forclosure is truly a good buy. Be Realistic...Don''t underestimate the real cost of paint, carpet, landscaping, appliances, light fixtures,  mold remediation, dry rot repair, central hear & air, new roof, plumbing (are the copper pipes still there?) or faulty or missing electrical.

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.  When buying a property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees accumulated during the foreclosure process.  You must also be prepared to pay with cash in hand.  And on top of all that, you’ll receive the property 100% “as is”.  That could include existing liens and even current occupants that need to be evicted.  A REO, by contrast, is a much “cleaner” and attractive transaction.  The REO property did not find a buyer during foreclosure auction.  The bank now owns it.  The bank will see to the removal of tax liens, evict occupants if needed and generally prepare 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.  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’s commonly assumed that any REO must be a bargain and an opportunity for easy money.  This simply isn’t true.  You have to be very careful about buying a REO if your intent is to make money off of it.  While it’s true that the bank is typically anxious to sell it quickly, they are also strongly motivated to get as much as they can for it.  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.  But there are also many REO’s that are not good buys and not likely to turn a profit. 

Ready to make an offer?
Most banks have a REO department that we work with when buying an REO property from them.  Typically the REO department will use a listing agent to get their REO properties listed on the local MLS.   Since banks almost always 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 and terminate the offer if you find it.  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 pre-approval 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 days or even weeks.