Buying Bank REO Homes

Bank-owned homes, also known as REO homes (real estate owned), offer advantages over foreclosures. What distinguishes the REO home is that it has gone through the foreclosure process where no one was successful in bidding on it for purchase.

Why Buy a Bank REO Property?

  • REOs are usually listed on the FMLS/MLS, so they’re easily searchable
  • REOs often include the appliances
  • REOs will sometimes provide an allowance for certain repairs by the lending bank
  • REOs are ordinarily improved to at least a salable condition whereas a foreclosure can be all over the board
  • REO homes can be inspected prior to contract unlike foreclosures at auction
  • Banks that own the REO property will sometimes provide better financing deals than they would with traditional properties
  • REO homes will have all liens against it removed and the taxes will be paid

Contacting a REO Listing Agent

Once you have decided to purchase a real estate owned property there will be a number of things to find out before making any offers. The first and most obvious is deciding where you’d like to purchase the property. Every area has its own rent rates, standards of living and specific characteristics. Hopefully by this point you have an idea for where you’d like to invest. If not that is ok but more time will have to be put aside making the purchase area decision.

Speaking to a Bank REO listing agent in any given market will expose some very important insights. The more you can learn before handing an offer over to an REO Listings agent the less risk you will face. There is inherent risk to investing but it does not have to be risky. Numbers don’t lie so study them for every property that looks interesting.

Here are some questions to ask an REO Listings agent when you see a for sale sign:

  1. Was this an investment property?
  2. If so, what were they charging for rent?
  3. What is the vacancy rate?
  4. What were the average annual maintenance costs?

Remember, banks are not in the home buying and home selling business, so they want to get rid of them quickly. REO homes provide opportunity to the diligent buyer.

If you would like additional information or would like to see which homes currently on the market, visit the Bank’s REO Portal for all the listings in your area.


What is an REO?

An “REO” is real estate which has been purchased by a bank after a foreclosure.

What are the advantages of buying an REO?

Bank REOs are generally available for purchase for less than the fair market value of the property. Although REOs are no different from other property resales (except with respect to price), many people who purchase REOs do so for investment purposes and re-sell them or refurbish them for a quick and substantial profit. You should remember, however, that every property is unique, and results may vary.

What kind of financing do I need to purchase a bank REO?

You can pay all cash. If you dont plan to pay all cash, the financing you can receive will depend on the particular lender selling the property and the lender which is willing to lend you the funds to purchase the property. Typically, you can expect to pay 5 to 10% down for the property, plus closing costs. You may be able to finance the remainder of the property price. Please feel free to contact your local lenders who will assit you with financing. Banks might also assist their REO buyers with flexible and convenient financing options.

How can I evaluate the deal?

For starters, you should compare the price of the REO to the last sale price of the property. This can be done by reviewing area tax records. That way, you will know if you are paying less than the property most recently sold for. You can also ask a real estate broker for a “comparative market analysis” which can be used to compare the REO you are interested in purchasing to other similar properties in the area. In certain circumstances, a local Real Estate agent will perform a comparative market analysis for you for a nominal fee.

How do I buy the REO?

First locate the type of REO property you want to purchase and then contact an REO agent to expedite the process of buying n REO property. Agents with local experience and expertise can provide unmatched savings to purchasers of commercial and residential real property in the foreclosure market.

How to Find Pre-Foreclosure Properties and Bank REO Homes

I figured that I would share the method that I’ve used successfully to located Pre-Foreclosure properties AND locate Foreclosure properties before they’re on the market or listed (Government Auctions).

First, I’ll explain how to locate pre-foreclosures, This process took me a week or two of digging, and talking to local authorities.

What are Pre-Foreclosures?

Pre-Foreclosures are properties where the homeowner has become delinquent and/or deflated on their own loan. These properties can be worthwhile for real estate agents who are looking at listing short sale properties effectively. In addition, investors may want to purchase the non-performing loan off of the bank, perform a workout for the bank as loss mitigation, or negotiate a short sale for a investment.

In my state, properties are almost always announced in the local newspaper 3 weeks prior to the sheriff’s sale. Unfortunately, many times you will find out that something has happened to the homeowner or loan when they hit the newspaper.

To find them, I went to my local county courthouse and asked around, many people told me online that I could get these lists from local title companies. At least in my area, this is totally untrue, I had talked to a minimum of 5 different title companies and not a single Representative had any ideas on how to find this information. After a while, I found out that the local Court of Common Pleas handles the def alt notices, and keeps track of the litigation. Thankfully, with a quick google search, my local court was found and they did have a searchable database.

The database was GOOD, but unfortunately I had to tweak my settings to get it working right. Many local government entities have similar systems so I hope my configuration works. I normally sort by “court ID number” This allows me to get lists in chronological order. In my county this year’s list is something like 2008ci0001 and then increases by number. Unfortunately this could be quite tiresome looking for each listing. I use an Asterisk (*) instead of the last 3 or 4 digits to represent a wild card. This little tweak gets me the entire year’s litigation, and find the foreclosures. In about a hour, I was able to get the names and address of all current homeowners that have defaulted.

As for pre-REO Properties, another government entity that sells property is the sheriff’s department. They handle the auctions of foreclosed homeowners. Properties only become a lender owned property (REO) when and if they buy it back at the sheriff’s sale. The general public is allowed to buy at the auction, and there is a potential for a good deal to be had on these properties. Unfortunately you assume a few risks when buying a property at a sheriff’s sale, the biggest is the fact that you’re buying sight-unseen. It’s not legally permissible to get access to the property prior to the foreclosure auction (That is unless you contact the homeowner and they give you an OK.) The second major risk is that most lenders will bid the property to the price they have as a mortgage on the property. A home may only be worth $50,000 yet have a $100,000 mortgage on it. This means that the bank will usually bid up to around $100,000 on the home. Unfortunately some individuals figure that whatever the price is that the bank bids up to is worth it, and loose quite a bit of money on the property.

In addition, most sheriff sales require a 10% down payment the day of the auction, this for some people makes it unreachable. You then have 30 days to finance the property if you are not going 100% cash in.