Buying REO Properties Part III

I want to share a conversation I have with potential buyers almost daily.

Buyer- Hi, I'm interested in looking at 123 Main St.

Me- Wonderful. Let me tell you a little about the home. It is a REO property that needs quite a bit of work, the utilites are off and the furnace is missing. Are you looking for a fixer upper?

Buyer- Yes, my family has fixed up homes for years, we can handle anything.

Me- That's great. Do you have a proof of funds letter ready to go stating you have the cash to buy this property.

Buyer- No. I'm getting a loan.

Me- Oh...have you informed your lender that you are looking at REO properties? Are they aware that the utilities are off?

Buyer- No, but that won't matter.

Me- It won't matter?

Buyer- Yeah... I told you my family has been fixing up properties for years, I can handle the work. I want to buy this house!

Okay, the conversations are usually a little more in depth, but this sums it up pretty well. Most buyers looking at REO properties just look at price and not how they plan on paying for the home. If you are paying cash, you are in great position and you can go after any home you'd like.

If you are getting a loan, your choices are slimmer. Lenders have tightened their belts and are only loaning on properties that are habitable, and in order to be considered habitable the utilities have to be on and working.

To save yourself a lot of time and heartache, determine if the utilities are on before you run out to look at a REO property.

• You or your agent can contact the listing agent to verify if utilities are on
• Call the utility provider-they can tell you if they are on or off
• Look at the meter at the house, if there is movement, it's on

Most REO Asset Companies require that their listing agents turn on the utilities to their properties. Here are a few reasons the utilities would not be on-

• Property condition- missing furnace, exposed wires, missing plumbing, missing light fixtures, etc...
• Safety concerns- It could pose a hazard to keep utilities on
• High potential for squatters
• The utilties have been off for an extended period of time and the city or county will require the building inspector to inspect the property prior to turn on.
• My favorite- The LAZY lisitng agent.

Be careful of number four when you are looking at REO properties. If the utilties are off, have your agent call the utility provider to see if the home will require an inspection prior to turn on. If no ispection is needed and the property looks in pretty good condition, call the lisitng agent to find out why they are not on. It is their job after all to have them on. If yes, an inspection is needed, check with the local building department on their codes. Another good idea when an inspection is needed is to call an electrician who is licensed in that city to walk through the property with you. They should be able to give you an idea as to what will need to be done to bring the property up to code.

Bottem line, lending standards are strict, if you are getting a loan to buy a REO property, make sure the home is habitable before you invest too much of your time and energy.