Buying a foreclosed property at auction can net you a great bargain, but it may turn out to be less of a steal than you thought. If extensive work is needed on the property, which you didn’t have the chance to view internally before buying, you may have paid more than you needed. However not all foreclosed properties get sold when the bank puts them up for auction, and you can get a far better deal in many cases if you wait until the property becomes ‘real estate owned’ by the bank. There is more certainty attached to what you actually buy if you purchase an REO foreclosure.
Cash is your ultimate weapon when making an offer on a REO. Cash buyers have the advantage over other buyers who cannot move as speedily with a mortgage to close on. Banks want a quick sale when they have an REO on their books. Not only are they losing money on the vacant property, but it is costing them to insure the property and pay property taxes. The sooner they can unload it the better.
If you can offer cash it will have more appeal than a higher offer from someone reliant on a mortgage, and may even allow for a further discount on the sale price. If you are in a cash rich position then ensure that your offer is submitted with proof of available cash.
Those who are reliant on a mortgage can increase their chances of having an REO offer accepted if they are have proof of mortgage preapproval. It is worth submitting a preapproval letter from the actual bank which is selling the property, as this will carry far more weight than a rival bank mortgage. However you are not obliged to arrange your mortgage through that bank, and can opt for your own choice of preapproved lender.
Banks use specific agents to sell REO’s, thus it pays to do advance research on the agent’s record of offers accepted compared to sale prices, on previous REO’s they have handled. This should give an indication of the level of offer you need to submit, and if it needs to be above the bank asking price. Knowing how long the property has been available for sale as an REO is vital as the longer the bank has been stuck with it the more likely they are to accept a low offer.
You may choose to use an agent to make the offer for you. In this case search out one who has dealt successfully with the banks agent before, and may have more knowledge regarding what kind of offer the agent would accept. If you submit an offer which is rejected but the property remains on the market, resubmit the offer a month later
Banks sell REO’s “as is”, but you have the advantage of being able to view the property in advance of an offer. Arrange to view with a builder on hand who can give you a fair assessment of the costs involved in repairing any defects, and take advice if these figures should be included in your bid offer as known. The bank may view you as a better buyer than a rival if you have assessed and outlined any problems with the property which you accept the bank as having no liability for correcting, than a rival who is waiting for a property report.
REO’s can offer the best buys on the market so it is worth being prepared when you make an offer. The research and effort you put into it could well net you an absolute bargain which realizes an excellent profit for you to use to buy up another one.