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Dos and Don'ts of Making an Offer on REO Property

Updated on September 10, 2017
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Coming out ahead when buying foreclosed homes takes a little know how

First time offers are not always acceptable. Get ready for rejection..
First time offers are not always acceptable. Get ready for rejection.. | Source

Devising a plan to obtain an a REO is basically buying a foreclosed home owned by the bank

A property owned by the lender instead of the homeowner under a mortgage is referred to in real estate as an REO (real estate owned). Bank and other lending institutions are in the business of connecting mortgages with homeowners. The idea of owning a piece of land or house for sale is not a comfortable place to be. Getting rid of these items or selling them is a real estate process. Therefore, there is a big move to put these on the market and move them quickly.

There are several things to consider once a person makes the choice to purchase a property listed as what is known as a Real Estate Owned property from a bank or financial institution. It is certainly possible to buy a foreclosed home or property and see bigger discounts by going this route.

There are all sorts of material around the web and commercial's on television making it sound easier and extremely successful financially with little to no work. However, in countless situations the entire process gives more headaches than most people imagine. Learning a little more about the pros and cons to the situation are of enormous value for the average person.

Where do these listings come from?

Buying a house means borrowing an enormous amount of money for the average person. A financial institution puts faith in a buyer the buyer will repay the loan and the house is worth the monies spent.

An agreement is made and a repayment schedule established. Failure to pay as agreed upon is not acceptable. There is typically an adjustment to the original contract to allow the buyer to catch up payments to put them back on the original schedule. All sorts of interruptions and reasons for the circumstance. Though, some of these things are simply too much for the budget to handle. A foreclosure will take place in this situation.

When it becomes impossible for a person to get "caught up" or or make agreeable arrangements to catch a foreclosure action generally takes place. State laws are in place surrounding the entire action. Depending on which state the action takes place, where the land or house is located and other variables make for diversities in the foreclosure process When all is said and done the bank or financial institution becomes the new owner of the home.

Financial institutions are not real estate buyers or sellers. These folks are in the business of making money from the transactions. Therefore after taking possession of the property the first step taken is a foreclosure auction to get rid of it.

This is typically the best way for a lender to attempt to stay ahead in the circumstance. Though, this method of getting rid of it rarely results with the end result of it being sold. After this course of action fails the property is returned to the bank as a REO or real estate owned property. Before investing in this type of financial venture, find out some more info.

Lots of the material is a surprise for winners without all the facts. Buying it and flipping it for an enormous profit is difficult to say the least.

Need to know info

Anyone is able to make an offer to a bank on a REO property. As a private party, make an informed decision by following some important benefits and pitfalls. There is no requirement to be part of a company or business enterprise.

Always keep in mind the more data a person is able to procure the better.

Things to do

DO- Make an inclusive offer. This is important if there is definitely work to be done. It is possible it needs a new furnace or roof. Some require passing a city or state code for electricity or plumbing. This is possibly an expensive investment on top of the price. Work such as repairs create the possibility of more money than expected put out and sometimes never fully recovered.

For the most part these are sold in “as is” condition. Furthermore, banks are not homeowners Repairs made by individuals who held the mortgage are not always considered upgrades. Fixes a home owner makes are not always an effort to increase the equity or value of it. Purely cosmetics which downplay the equity are also possible.

DO-Have the monies or financing in hand for buying before making an offer. This is especially important for anyone not paying all cash. If not all or any in cash, the guarantee of financing is enough. This always has a tendency to make an offer extremely attractive to the seller. Additionally, the entire process is easier with cash.

DO-Make a realistic offer. Of course, tons of infomercials make it seem as if a person has any type of proposal no matter how low it works out for the buyer. In fact, it seems as if it is a situation where the person out to get the home is doing the bank a favor. No one is getting a home for a couple of hundred dollars.

Any serious buyer avoids these marketing techniques. Purposely putting forth an unrealistic proposal is a sure fire way of walking away with nothing. The seller will have a negative point of view of this kind of person in the end.

Nearly all financial institutions are in a position with a necessity to satisfy shareholders or boards with investment decisions. This means a great effort is made to recover the mortgage and costs invested in the property and possibly a profit if at all possible.

Along with things to do, there are others to stay away from. Avoiding these puts a buyer in a better position for a positive outcome.

Things not to do

DON’T-Never assume anything with the contract. Be sure and to read and understand all of the fine print for any contract signed. Look up some examples around the web. Make certain it details what both parties want. Understand everything before signing.

DON’T-Avoid being discouraged if an offer is refused or circumstances work out in another buyers favor. It’s not a personal affront whether or not an individual gets a positive result, especially the first time around. The bank is seeking the best offer for the real estate which possibly means going with someone else.

DO-Make an attempt to finalize or close the deal as quickly as possible. Closing the deal generally takes place in a realistic time period. Characteristically it is faster than the average closing on a mortgage sale.

There is the possibility issues come up connected with things usually related to the title connected to a piece of real estate. This is no different than some issues seen with the average mortgage.

In the end

These are Dos and Don’ts for getting ready for an offer and completing a sale on this type of real estate. Remember, the company getting rid of it is trying to recoup the losses suffered on the first mortgage on a piece of real estate. Although there is not always enormous profit to be made, the institution is looking out for personal best interest. Giving them a serious authentic offer for a foreclosed property puts a person in the running for successfully getting it. Banks tend to take the best offer for the property.

Foreclosure Auction Info

When a foreclosure auction is held houses are very rarely sold. Failure happens for a number of reasons. Unfortunately, a buyer must have a cashier’s check in hand for the offer being made on property. This is a major difference between getting a piece of real estate via a mortgage versus an auction.

An offer must include at the minimum, the cost of the mortgage, appraisal fees and any other costs the institution deems necessary. Most in excess of those previously listed are monies spent or incurred during the foreclosure process.

Securing bank financing for a foreclosure auction is not a possibility which makes them seldom successful. There are a limited number of buyers in most communities with the necessary financing needed, cashier's check in hand.

Banks have entire departments dedicated to REOs and getting them sold to try and recuperate some of the monies spent in foreclosure procedures, foreclosure auctions and more importantly the actual mortgage for a piece of real estate.

Dean Wegner speaks on the book available through Amazon titled life after foreclosure

Where do these come from?

Countless folks imagine homes or land listed as REO are all bank owned. Remember, mortgages are created from all sorts of institutions.

Not only are banks able to set up a contract with a home owner, but there are other businesses capable of doing the same.

Credit unions, government agencies or government loan insurers such as Fannie Mae or Freddie Mac are also listed in this category.

Have a strategy in mind. It reminds some of a game of chess.
Have a strategy in mind. It reminds some of a game of chess.
There is competition on hand vying for the same piece of land. Remember to bring the best game with each try.
There is competition on hand vying for the same piece of land. Remember to bring the best game with each try.

An ace in the hole for someone looking to buy is shareholders

Nearly every single financial instituation is answering to shareholders in the company. When the books are done and it appars there is more red than black due to foreclosed homes, no one is happy.

Getting rid of these non money makers and turning them into cash via a sale is a plus for them. This means there is room for negotiation on a much larger scale than most buyers imagine.

Having a sure fire payment every month for 15 or 30 years is a good thing. Therefore, when this goes bad an enormous change is made. This is where the auctions come in.

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