Buying a REO or foreclosure in San Diego
What's an REO?
REO's or Real Estate Owned are homes that have gone through foreclosure which the bank or mortage company presently owns. This differs from real estate up for foreclosure auction. If you buy a property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees added during the foreclosure process. You must also be able to pay with cash in hand. Finally, you'll receive the property completely as is. That possibly will comprise current liens and even current residents that need to be put out.
A REO, on the contrary, is a much cleaner and attractive transaction. The REO property was unable to find a buyer during foreclosure auction. Now the lender owns it. The lender will see to the removal of tax liens, evict occupants if needed and generally arrange for the issuance of a title insurance policy to the buyer at closing. Do be aware that REOs may be exempt from normal disclosure requirements. For example, in California, banks are not required to give a Transfer Disclosure Statement, a document that usually requires sellers to make known any defects they are informed of.
Is an REO in San Diego a bargain?
It is occasionally though that any REO must be a good buy and an chance for easy money. This isn't always true. You have to be prudent about buying a REO if your intent is make money. While it's true that the bank is often anxious to sell it fast, they are also strongly motivated to get as much as they can for it. When pondering the value of a REO, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs or remodeling needed to prepare the house for resale. It is possible to find REOs with money-making potential, and many people do very well flipping foreclosures. However there are also many REO's that are not good buys and may not be money makers.
Time to make an offer?
Most lenders have a REO department that you'll work with in buying a REO property from them. Commonly the REO department will use a listing agent to get their REO properties listed on the local MLS. Prior to making your offer, you'll want to contact either the listing agent or REO department at the bank and find out as much as you can about what they know regarding the condition of the property and what their process is for accepting offers. Since banks usually sell REO properties "as is", it may be in your best interest to include an inspection contingency in your offer that gives you time to check for unknown damage and terminate the offer if you find it.
As with making any offer on real estate, your offer may be more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender. Once you've submitted your offer, you can expect the bank to respond with a counter offer. Then it will be your decision whether to accept their counter, or submit another counter offer. Be aware, you'll be working with a process that most likely involves a group of people at the bank, and they don't work evenings or weekends. It's not unusual for the process of offers and counter offers to take days or even weeks.