Buying a REO home provides a great opportunity for the first time buyers or the savvy real estate investors. But the process is not it’s not the same as buying through ordinary means. Before getting started buying an REO home, you need to have a understanding of what's involved in the process.
The term REO means; "real estate owned", and REO homes are homes, which have gone through the foreclosure process but failed to sell at the foreclosure auction. The home then becomes the property of the lender (usually a bank), which needs to off-load it as soon as possible. The bank considers these properties “non preforming assets”. Which means they are costing them money to hold. This gives typical home buyers a great opportunity to obtain a property below market value. These properties come with clean title and vacant possession.
Just to give a word of caution: In some areas where there are large numbers of bank foreclosures taking over the market, you may truly find that REO properties are selling at 20-30 percent below market value. In some cases don't count on it. The bank wants to recover as much of its money as it can, so it will some time attempt to sell as near market value as possible. So make sure you have your REO agent conduct a price trend analysis of similar homes in the area and calculate the costs and time of repairs, before you deciding if a property is a bargain or not.
So how do you buy a REO home?
- Attend a foreclose auction as a spectator and see what houses don’t sell. Take note of the address and drive by the house until you see it go up For Sale to go up. Then contact a realtor. Remember that only certain realtors specialize in REO properties.
- Find out if your Realtor knows the selling protocol for the bank. Every lender has its own "selling protocol" for their REO properties. So once you have identified a property, find out the selling protocol for the bank selling it.
- Before you put forward an offer have your realtor check whether there are any pending offers on the property. Also get your agent to check whether there is planning permission for any extensions to the property.
- Banks will not accept offers directly from you the buyer. They will only accept offers from an agent or broker.
- If you need a loan, get you’re a strong pre-approved a pre-qualification will not do in a REO transaction.
- Be prepared for the banks counte offer. When you make an offer to purchase from the bank, the bank will almost certainly respond with a counter-offer. This tactic is to demonstrate to their shareholder that you made the effort to get the best price. Don’t quit after one offer; continue to negotiate to get the best price you possibly can.
- The bank will not provide credits for repairs or carry out repairs to the property - you must understand your buying "as is". They will provide a termite clearance. You will be allowed access to do your own inspection, at your own expense. A home inspection is greatly recommended. Make sure your offer includes an inspection contingency that allows you to withdraw should the inspection reveal major problems. Note that sometimes, if you do announce your intention of retracting, the bank will more than likely drop its price to prevent the hassle of putting the house back on the market.
- Remember banks are immune from disclosure regulations, so usually you will not get a disclosure about history, conditions, etc.
- The bank will ask you how quickly you can close escrow -- you should be able to close within 10 days for the best chance of acceptance - and whether your offer is contingent on anything, e.g. the sale of your present residence. They may also check your credit score.
- Rarely, lenders will in fact carry out renovations. However, you are much better advised to purchase the home before overhauls. You will get a better price and you will have control over the work done and its quality. The reason banks sometimes do it is to impprove the price they can get, but the work that is done is usually cheap and of poor quality.
Buying a foreclosed homes in New Jersey is not as simple and straightforward process as most people would imagine. After going through all these procedures, you may still find the bank keeps you waiting while they try to find a better offer. To get the best chance, go after houses that have been on sale for 30 days or more. If you know the process and can negotiate all the ins and outs, you stand a chance of finding a very good deal.