How to buy an REO house? Usually how long will it take to close the deal?

Asked by Mike, Milpitas, CA Tue Jan 25, 2011

Is it a good idea to buy an REO house? If it is yes, how to proceed? What qualification should I look into for the realtor in this regard?

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Andrea Wince…, Agent, Milpitas, CA
Tue Jan 25, 2011
REO sellers have their own contract addendums they require in addition to our regular Realtor contract (the California Assoc. of Realtors RPA-CA). The REO/Bank seller addendums can be multiple pages and it is important you use an agent who has sold REOs before (I have). REO's are not always in the best condition so they are not for those unwilling to put in a little sweat equity. These properties are often missing appliances (stoves, dishwashers, etc.) and require paint, carpeting, etc. Roofs, fencing, landscaping, etc. can also be an issue. It is imperative you get a home inspection! A typical REO escrow can take up to 45 days. An REO seller will require, you, as the buyer to submit a preapproval letter (usually from a DIRECT lender) along with your offer or it will not be considered. If you need further assistance, please contact me through my Trulia profile. Kind regards.
1 vote
Tina Lam, Agent, San Jose, CA
Tue Jan 25, 2011
The purchase process is just like a regular sale. Except in this case, the seller is the bank. A few things that you want to be mindful of
1) First selling banks usually require that you pre-approve with their own loan department. While you can still shop with other lender, the selling bank may give incentive only if you get financing from them
2) The condition is "as-in". While you can do the inspection and have the inspection contingency, banks will budge if you ask for price concession on repair
3) Make sure that the title is clean and there is no other lien on the property.

The most common credentials are designations such as SFR (Short Sale and Foreclosure Resource) or CPDE (Certified Professional of distressed property)
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1 vote
Norman Aless…, Agent, San Jose, CA
Tue Jan 25, 2011
Hi Mike,
Well you already recieved some good advice, let me add a few points. First thing yes they can be a good buy, but as CJ pointed out you need to watch for what kind of condition the home is in, ( inspections and visual looking at will tell). Second you need a good buyers agent who has done several REO transations, as there ARE pitfalls that you need to be aware of regarding, time lines on contingence removal, the banks own addendum, having all the things you needed such as proof of funds, preapproval letter from a direct lender ( also the listing agent will most likely want you to pre-approve with his lender).
The thing I would really look for in getting a good agent that will get you the best deal while protecting your interest is basically EXPERIENCE in dealing with REO transations, period.
There are several VERY qualified agents right here on trulia who would represent your interests well, just look over the profiles and answers of a few of us and contact the ones you think would represent you well.

At your service,
DRE# 01397256
0 votes
Diane Smuger…, Agent, Pleasanton, CA
Tue Jan 25, 2011
REO homes are fairly quick to close...they are nothing like short sales ! The banks would like to get them off there books as soon as possible. Many can close in 30 - 45 days. I've not had any issues when dealing with banks on REO's.
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Daniel Berman, Agent, Palo Alto, CA
Tue Jan 25, 2011
Mike, in response to your questions:

1. REOs can be good buys but it all depends on the particular situation. Contrary to the hype about "foreclosure" properties, you are not likely to be able to purchase any REOs at bargain basement prices.

2. The best way to purchase any property is with the expert assistance of a good agent.

3. Experience and references are important indicators of the quality of the work an agent will likely do for you.

Hope this is helpful.


Daniel Berman
Pacific Century Realty
Buyer Rebates to 50%
Listing Commissions as Low as 1%
Multilingual Services
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David Chiles, Other Pro, Los Angeles, CA
Tue Jan 25, 2011
Thank you for your question about purchasing an REO. The Bank of America Learning Center is a good place to start for general information about REO's and to look at their REO properties to get a feel for the REO market. Distressed properties account for about 1/3 of all home resales and their is a 28% average discount vs non distressed properties.…

The length of the purchase process depends on the lender. The more cash you have to offer the faster the transaction can proceed.
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CJ Brasiel, Agent, San Jose, CA
Tue Jan 25, 2011
Mike -

As a buyer representative, the agent's job on an REO should exceed in:

1.) Ability to evaluate REO property and neighborhood comps, activity, and historical perspective to help in predicting re-sale so that an appropriate offer can be made on the home. Not uncommon to have a listing under market value to induce a buyers' bidding frenzy. Know the real numbers.

2.) Ability to follow instructions and prep the buyer with the time line and to do list to get their offer accepted. REO listing agent's have certain instructions and requirements for submitting an offer. Many time this includes a pre-approval with the REO lender of choice. Doesn't mean the buyer has to use this lender but a pre-approval also requires everything the buyer submitted to his/her lender to be submitted to the REO lender and many times that also means another credit report run.

Proof of funds (money available to close) is another typical requirement for all offers. Clean, clear contracts, put together in whatever way the REO listing agent so desires. Compliance is key and stubbornness hurts the offer. Best chance offers come AS IS, shortest contingencies, and an actual date to close (not 35 days). Recognize that offer is submitted on one contract but REO owner normally sends back their own contract which trumps all previous documents. Read this extra carefully and ask lots of questions about what -ifs.

3.) Good review of the property condition. Your agent should have an opinion about the property condition and red-flags for further investigation. If there are non-permitted additions/remodels, water stains, visible foundation cracks, old roof, appearance of termite damage etc. , your agent should be at least letting you know what he/she sees and what inspections they would recommend. Your agent should be able to give you a ball park of inspection costs and recommendations. I have brought out contractors before writing offers on houses that have non-permitted additions for ball park calculations on corrections. Having timely inspections is critical because you want plenty of time to decide and release contingencies or cancel way before due date.

4.) Escrow coordination between your lender, seller, and title can be challenging with REOs because many times it is not a local company. Your agent should help manage this so that you can close on time and avoid any per diem fees charged for late escrow close. Your lender should have a complete package by the time your offer is accepted. Contingency periods are tight. You do not want to put your deposit at risk.

There are other things that are unique to each purchase, REO listing agent, and owner that I can advise on once I know the house. An organized, detailed real estate pro and loan officer will help you be successful with an REO purchase.

Good luck,
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Lance King, Agent, San Francisco, CA
Tue Jan 25, 2011

Good is a subjective term. I'm assuming you are not talking about buying on the courthouse steps because that requires cash and there are a lot of risks.

REOs often offer opportunities price-wise, but they are exempt from certain disclosures and are often in less than ideal condition. This makes having inspections even more important.

There are some different aspects to the negotiations and offer process with REOs, so I would try to find someone that has done a few because that will help, although an experienced negotiator with lots of business experience should be able to handle the deal just as well.

Best Regards,

Lance King/Owner-Managing Broker
DRE# 01384425
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Kamal Randha…, Agent, El Sobrante, CA
Tue Jan 25, 2011
Hello Mike,

Purchasing an listed REO is pretty much the same process as buying any other home. You may be thinking short sales which can tend to take some time.

When you purchase an REO, please make sure you do all the necessary home inspections. Most banks inherit these homes in fair to poor condition and they do not know if there are any major issues with it.

Make sure you're working with a knowledgable realtor. If you like, I can send you a list of REO homes in your area. Feel free to call or email me if you I can be of further assistance.
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Mitch Larriv…, , Orlando, FL
Tue Jan 25, 2011
REO's are usually where the good deals are. You just have to place an offer on it like any other house. Typically, they want a couple of people bidding on it to make sure they are getting a fair price. Obviously you won't know what the other people are bidding (because it's illegal to protect you). So, when they come back and ask for your "highest and best offer" truly give them the best you're willing to pay for the house. I suggest you contact your local real estate agent to help you through this process.
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