Buying a house that is owned by a bank, advertised “as-is”, is in foreclosure, or is a short sale is not for the faint of heart. If your dream home happens to fall into one of these categories, here are some things you’ll need to know in order to decide if writing an offer is in your best interest.
A short sale property is one where the owners owe more to their mortgage company than the house is worth. The sellers and/or their real estate agent will try to negotiate with the mortgage company to accept less money than they are owed. Negotiations can take months and the mortgage company may require mountains of paperwork from both buyer and seller in order to consider the situation. In the end, the mortgage company may ask the buyer to pay more than they originally offered.
These words are almost always a red flag. “As-Is” usually means a house is in disrepair or damaged and the owner is advertising to sell but will not make any repairs. You may still have your own home inspection, but the seller will not fix anything you find wrong with the house.
Real Estate Owned Properties (REO)
The term REO simply means that a house has been foreclosed on through the proper channels by the mortgage company that fronted the original mortgage money. The mortgage company now owns the house outright and is trying to sell it for top dollar to recover as much of their investment as possible. Foreclosed houses sometimes have been neglected or damaged by the former owner and the bank must repair the property before selling it to the general public. That means they may add the cost of repairs, along with listing fees, to the price when they list the property For Sale. Ask your agent if the list price of any REO property is reasonable for the neighborhood and condition of the house.
Like at any auction, an auctioned house will go to the highest bidder. If you want to buy a house at auction, be prepared to bid against other serious investors on the courthouse steps or through an online process. If you are the highest bidder at an auction, you must immediately pay cash for your purchase.