What is an REO Property?
REO is real estate owned, typically real estate owned by a bank or loan insurer. Property becomes REO after an unsuccessful foreclosure sale, meaning it didn't sell at the sheriff's sale, so it is now in the bank's ownership. Very few foreclosure or sheriff auctions result in a sale. Typically what is owed on the property is more than the property is worth. When ownership reverts to the bank, the bank will remove all loans, liens and debts on the property and try to resell it to the public.
You are interested in buying a bank owned (REO) property:
Hire a realtor. It's a great idea but you should know the facts. After possession by the bank and removal of all liens, the bank may make some repairs that are immediately necessary. You should know the current market value of homes that are comparable. Factor in any necessary renovations and repairs that are needed to the property. This will determine a fair price to pay for the home. I recommend hiring a realtor who is a local expert.
Your realtor should find out: have there been any inspections?, are there any special forms the banks requires?, how long will the bank take to accept an offer?,
Banks want to get the best price possible for the home. They have no interest in selling real estate cheaply. They have investors, auditors and shareholders to answer to. You may receive a counter offer. Discuss with your realtor whether you should accept or counter the counter-offer. Always allow time to hear from the bank. In most cases, banks have REO departments and you may receive an answer within 48 hours. Every bank is different, so don't be surprised if it takes longer.
Banks sell properties in as-is condition, so you should have an inspection. Banks will allow you to have an inspection but they will most likely not make any repairs. Your contract should allow for an inspection contingency. A bank may re-negotiate if there are extensive repairs to save the sale, but it's best not to rely on that.
Your realtor will put together the necessary paperwork for this transaction. Contracts are the same for a "normal" resale, with the exception of any required paperwork by the bank. If you are getting a mortgage you will need a pre-approval from your lender. If you are paying cash, you will need to show proof of funds (or where your cash is coming from).
It can be a very good way to buy property. This is just a brief explanation. Your local realtor can help answer any questions you may have.