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REO (real estate owned) properties are those parcels of real estate (either commercial or residential) that have been foreclosed on and are now owned by a lender. A large majority of bank-owned properties are marketed by local real estate agents, and therefore these types of properties are primarily listed in the Multiple Listing Service (MLS). The MLS is a regional or local fee-based service whereby members of the Board of Realtors® exchange their listings.
The listings on the MLS used to be exclusively available to Realtors®. However, since the inception of the Internet, many times you will be able to find these MLS listings online. Keywords you can use for searching bank foreclosures are: "corporate owned," "as-is," "allow ample time for bank approval," and "no disclosures."
It is advantageous to have contacts with two or three real estate agents so you are notified when a new property is listed on the MLS. You can also check with the lenders to get the list of the properties they have listed. Some lenders post their properties on their website.
If you are looking for an investment, and have targeted REO's, make sure you do your due diligence. It is not uncommon for an REO to have sustained some type of damage, either inflicted by the previous owner or as a result of prolonged vacancy. When you find the property your are interested in, verify its condition both inside and out. It is also wise to learn the details about the neighborhood—its proximity to shopping, schools and other amenities, and any local economic factors that would affect the value of the home.
If you are not qualified to inspect the property, consider hiring a property inspector. The inspector will be able to tell you if there are any serious structural problems you may have to correct. This is important, as it will affect your budget and may turn a great deal into a lukewarm opportunity.
Only after you have thoroughly evaluated the property and drawn up a budget should you make an offer to purchase the piece of bank-owned real estate.
Many times, banks will offer the property "as-is" and there are no other negotiations to be made outside of the selling price. Make sure that your bid reflects a realistic view of what you can afford.
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