People have been buying and selling REO, otherwise known as foreclosures, for decades. There used to be huge real estate courses specifically designed on how to make millions buying foreclosures. Unfortunately many of the rules from that time have changed. Bank-owned REO, or real estate owned, is fairly strict to work with these days.
You can make money on foreclosures, but it's not quite as easy as it was. You have to use your head and do the math. There are only a small percentage of deals that are actually worth it, and the trick is finding them.
Find a real estate agent that specializes in foreclosure
First, you need to find the foreclosures. There are many great resources online for this, such as www.bankforeclosuressale.com, and many real estate agents that specialize in foreclosures. You can often find a good REO agent that will work with you, and they may point you to a large list of foreclosures that you might have interest in. Don't count on personal service from some of the larger agencies though, as they just have too many properties.
Get a buyer’s agent
A buyer's agent is always a good idea. This is a real estate agent that represents you, and they have a legal obligation to protect you. They are paid by the seller so it doesn't cost you anything. A good buyer’s agent will understand how to negotiate with the bank and help you take care of any difficulties that might appear. They are also good for pointing out any landmines that you do not see from lack of experience.
Pre-approved credit letter
You'll be required to show a proof of funds or the ability to borrow with a letter from a lender when dealing with foreclosure. Nothing will move forward on any foreclosure without this information unless you're going to pay cash. Your bank or lender can help you with this.
Almost no negotiation
Be prepared for almost no negotiation. With normal real estate purchases, it's pretty much standard to negotiate with an offer and counter-offer. With REO property this is much rarer, so you need to do your research.
No refunds and no returns
There are no guarantees what you buy is going to be worth it, and there are no returns. What if you buy a house that is in such a massive state of disrepair that you must tear it down? That's your problem, not the banks. They have no legal obligation to tell you anything. Do your research. If you can make your offer contingent on a home inspection, do so.
Research, research, research
Research everything. Check to see how long the house been vacant. Check the area. Hire a home inspector, or appraiser, to go and check the property out. You will be out of pocket for a home inspector, but it is generally going to be a lot less money than placing a non-refundable deposit down on the property. Make sure you do a title search, as that can save you a lot of problems if it turns out there is something wrong with the title. Different states have different rules, so when you look at Foreclosed Homes in NJ, do your research on your individual state regulations too.
Read everything carefully and then have a lawyer go over it
As boring as it may seem, read everything. Go over the contract line by line. Read all the paperwork. Then after you have read it, have a lawyer go through it and explain anything to you that you might not understand. A little bit of boredom now can save a lot of pain later.
Use your head and not your heart
This might seem obvious, but do not get emotional over the property. Unless this is for you to live in for the rest of your life and you don't mind repairing everything there is from the ground up. It's best to do it by the numbers. Use your head and logic, don't overpay and make sure there's enough room in it for profit with a large margin for error preferably.
The best advice we can give you is go get expert advice. Hire people that know what they're doing, and ask them a lot of questions. Hire a good buyer's agent, hire a good house inspector, make sure you have the financing in place and be prepared with Tradesmen for repairs. It is little different buying foreclosures than regular real estate, and the rules aren't the same. So if that's the market you going to move into, do your research. We hope these points help you get a feel for buying REO, and good luck in all your foreclosures.