Buying REO Property: What to expect

An REO is a real estate owned property that has gone through the foreclosure process, was not purchased through a real estate auction, and is now a bank owned property.

Buying REO Purchase: How to prepare

REO properties can often present themselves as a good deal for the buyer. In most cases, the bank owner is willing to accept an offer to cover the outstanding mortgage on the loan.

In turn, many REO’s are listed for prices highly competitive for the area. When in the market for an REO, the buyer should work with a broker who is well versed in the REO space.

A prequalification from a lender prior to submitting an offer on the property can expedite the closing process to avoid any delay that may result in increased costs to the buyer.

REO properties are sold “as-is,” meaning there are no seller disclosures required detailing the state of the property.

An appraisal and home inspection are advisable to be certain that there are no major underlying problems with the home.

If any issues arise, the buyer can negotiate the sales price with the bank. Lastly, REO transactions can often be a long process. Some transactions may take up to 90 days from ratification to closing.

Buying REO property: The Closing Process

The closing process is identical to any other purchase transaction, however, there are a few nuances to REO transaction to be aware of.

In an REO transaction, the bank is seeking to recoup their investment in the property. As a result, some of the standard closing costs typically paid by the seller may be the buyer’s responsibility.

Most often, the bank will pay the seller side jurisdictional transaction taxes and property taxes, however, other seller side closing costs like settlement fees, condo fees, water bills, and optional fees like a termite inspection report may be transferred to the buyer.

It is also important to note that the bank will not offer any concessions in the form of a seller credit.

In a few extreme cases, the buyer may be responsible for transfer and recordation taxes payable by the seller.

Working with a realtor who specializes in REO properties can help in knowing what fees to expect prior to making an offer.

Lastly, an REO closing is subject to the bank’s approval. This means that once a final settlement statement is available, it is submitted to the bank for approval.

At this juncture, the bank will determine if there are any fees listed on the statement that the bank will not pay, or the bank will issue approval. Once approved, the settlement may occur. If there are any delays on the buyer side that result in an extended closing date, the bank must again approve the statement for a new closing date.

The more prepared the buyer and lender are prior to ratifying, the smoother the process will go.