3 Ways to Buy a Foreclosure

3. REO

By Melinda Fulmer of MSN Real Estate

These are the properties that went to auction but were not bid on, and so they reverted to the lender holding the mortgage.

In a hot market, these properties will sell for full market value. But these days, with sales sluggish and banks holding large inventories of these REO properties, many lenders are motivated to discount the price to move the properties off their books.

Just how much depends on the market, the financial condition of the bank and how many other foreclosure properties are in the area.

“If you are willing to buy into a neighborhood with some blight — a lot of foreclosures — that’s where you will see your heaviest discount,” as much as 40%, McGee says.

However, it’s more common to find REO properties running 10% to 20% lower than market value. That may not sound like much of a discount, but on a $450,000 house, a $45,000 discount can mean the difference between qualifying for a loan or not.

The good news, experts say, is that REO homes are lot less risky to buy than properties bought through a short sale or auction. For one thing, all of the junior liens have been wiped out. And, unlike an auction property, you can tour and inspect the home just like any other home on the Multiple Listing Service.

But, investors say, they are not without their own set of complications, including damage from an unhappy former owner. Some agents recall irate borrowers pouring cement down the toilet to mess up the plumbing, or intentionally flooding the house to inflict water damage and mold.

If a property has been sitting empty for a while, there’s a chance it might have missing appliances, dead landscaping or damage from squatters. So it might be a good idea to bring a contractor along to find out what kinds of repairs are needed and what they will cost before you make a bid. McGee suggests that for every dollar you spend on repairs you should knock $2 off the price of the home. “You shouldn’t do the work for free,” she says.

Investors caution that while you want to look for a fixer, you don't want to choose a place that needs to be gutted, because you will have a hard time getting financing for it.

Conduct a little research with the home’s last listing agent, if you can. Some REOs have wound up in foreclosure multiple times, because there’s something wrong with the property or its location.

“Sometimes there’s a reason the thing went into foreclosure,” Clarke says. “Just because it’s a foreclosure doesn’t make it a good buy.”

It’s best for: anyone who is interested in buying a property below market value and who is willing to do a little research.

The key pieces of advice for successful foreclosure buying, experts say, are to be educated, be thorough and be unemotional about the houses you bid on.

By Melinda Fulmer of MSN Real Estate

Regardless of the type of property that you purchase have a Licensed Realtor to assist you with the process. A Realtor can find the REO's for you and can turn in your bid. There are several other ways to find theses great deals contact me today to find out how. 972-468-5294