Buying REO Homes Part II

Now that you are familiar with the foreclosure process and how a property becomes a REO property, it's time we start getting into the steps and nuances of purchasing a REO property.

As I previously stated, buying an REO property is very similar to buying normal real estate. You will still write up a purchase agreement, submit it to the seller (the asset company or lender in this case), and negotiate with the seller until an agreement is reached. Unless you plan on paying cash for the property, you will still need to get pre-approved and submit the pre-approval letter with the initial offer. If you are paying cash, it is a good idea to keep a bank statement on hand(with the account number blacked out) or a letter from your bank stating you have funds available in the necessary amount.

Here are the main differences you should know BEFORE you decide to start looking at REO properties.

1. Almost all of the companies selling REO properties WILL NOT accept contingent on sale or even contingent on close offers. This means if you have to sell your existing home prior to buying a new home, then a REO property is not the direction you want to go. REO companies are trying to move these properties quickly and do not want to lose the marketing time with contingent offers.
2. If you have to sell your house prior to buying a new home and you are dead set on buying a REO property, get your home listed NOW.
3. Be prepared for verbal counter offers. In normal real estate transactions, everything will be in writing up front. In most REO cases, the offer is submitted to the seller via email or a computerized system. The seller then counters verbally or by email until a verbally accepted offer is reached. The contracts are then finalized after the verbally accepted offer.
4. REO companies have greatly increased their response times to offers and most respond within 48-72hrs. In a few circumstances, there are many levels of management and/or companies that have interest in the property and have to sign off on offers. This can delay the response or acceptance of those offers more than 7 days at times. Bottom line, be prepared to wait. The REO companies will want you to move quickly, but, do to different levels of interests on their end, it is not always possible for them to move quickly.
5. Once you receive an accepted offer, the REO company will forward you their As-Is addenda and any disclosures they have on the property. Most addenda are similar stating- the seller acquired the property through foreclosure, it is being sold as-is, they have never been to the property and are unsure of the condition and that they will provide clear title. The two most overlooked items you need to be aware of are- The addenda supersede the purchase agreement. It does not matter what terms you write into the purchase agreement, it is the wording of the addenda that matter most. If you agreed to any closing costs or repairs, make sure this is in the seller addenda. Second, most REO companies have a clause in the addenda that they have the right to charge the buyer a per Diem if it does not close on time through no fault of the seller. These per Diem's can range from $25-$100. Some companies have even gone to deducting from the selling agent's commission if it does not close on time. The per Diem is not negotiable. I have seen companies waive it if an extension is needed, but you need to be aware that it is in the contract.

These are the main items that I find buyers are not aware of when they start looking at REO properties. If you have any questions or need clarification please do not hesitate to contact me.