How to Purchase an REO Property in the Buyer's Favor

To get the best deal you should work with experienced real estate agents.

REO is an acronym for real estate owned, and it refers to bank-owned foreclosure properties that failed to sell at auction and are now listed for sale to the general public. If you're planning to buy one of these properties you should work with experienced real estate professionals, including a real estate agent, attorney and home inspector. An agent who is familiar with REOs will know how to best structure the offer, and because lenders write addendums to the contract which favor the lender, an attorney should review all documents before you sign anything.

Instructions

1. Work with a real estate agent who is experienced in negotiating REO transactions. The agent will know the types of offers that are most likely to be accepted by the lender, and this will help you close on a deal more quickly. An experienced agent will also be familiar with the basic paperwork requirements that are typically requested when submitting an offer. This is important, because if the forms are filled out incorrectly or are incomplete there's a high probability that your offer won't even be considered.

2. Hire an attorney. A buyer must be represented by an attorney in some states and not others, but it's always a good idea when buying REO properties. The lenders can add pages and pages of addendums to the standard contract, and you need expert advice or you might end up paying for existing liens on the property after the closing. For example, in some states it 's unclear who is responsible for unpaid homeowner's association dues that accrue before the lender takes possession of the property.

3. Pay cash for the property. Lenders prefer a lower, reasonable cash offer over a financed one. The real estate agent needs to submit proof of funds along with the offer. With cash, there's no financing contingency that allows you to cancel the contract if financing isn't approved, and a quick close is advantageous for the lender. As long as the lender owns the property, the lender's responsible for paying the utility bills, property tax and association dues.

4. Complete a home inspection before submitting an offer. There's an inspection contingency in standard purchase agreements -- even in as-is contracts -- that allows you to cancel the contract if damage is detected in the structural elements. When the inspection is done prior to submission, you'll be in a more competitive position if the lender receives multiple bids on a property.

5. Obtain title insurance. Most lenders mandate the title company that is used for the closing and, if that's the case, the Real Estate Estate Settlement Procedures Act requires the lender to pay for the services, including title insurance. This law only applies to financed residential transactions, and not to cash deals. You definitely want the insurance because it protects against undiscovered liens and fraudulent documents. Both of these are issues that can occur with foreclosures.

References

• U.S. Department of Housing and Urban Development: More Information About RESPA