If you are a buyer who is thinking about entering the world of foreclosure properties, one thing to ponder is whether you can get a better deal buying at a foreclosure auction, or waiting until the home becomes an REO.
Foreclosure auctions are where lending institutions try to sell properties whose owners have defaulted on their mortgage payments. Because banks don't like being in the real estate business, they are keen to unload these properties as soon as possible and recover as much money as they can.
For a savvy buyer, a foreclosure auction can provide an opportunity to buy a home for less than it's worth. In order to participate in one of these auctions, a buyer must have a check on hand for the entire amount of her bid. She must match the minimum bid requirement, which will include not only the property itself, but also the costs that the bank has incurred by going through the foreclosure process in the first place.
Another downside of buying at auction is the fact that you are buying the property in as-is condition. There is no opportunity to get a home inspection done, or to even view the place yourself. In exchange for getting a good deal, you must take a blind leap of faith, and hope that the house is in reasonable enough condition to be a worthy investment.
Some of the risks involved with buying at a foreclosure auction can be avoided by waiting until after the auction to make an offer. Homes that don't sell at these auctions become classified as REO's, or Real Estate Owned. This means that the title has returned to the lender, and it is solely the bank that you will have to negotiate the purchase with.
For a buyer, an REO is a much safer bet. You are able to inspect the property yourself, and decide if the costs involved with getting the home in salable condition is worth it. Banks will still try to sell the home as-is, but you can always try to have repairs written into the deal since many lenders would rather eat the costs of repairs than lose a viable purchase offer.
In either an REO or a foreclosure auction, the bank is eager to offload their inventory, which means that a good deal can be had. It is important however, to not assume that the lenders will let these homes go at bargain-basement prices. You will need to work with the lender and meet their minimum purchase price, which may in fact be higher than you're prepared to pay for a home that is in questionable condition. Shop around and get the advice of real estate agents who have expertise in these kinds of sales. They will make sure that you buy a home that is a solid investment, and guide you through all the intricacies involved with buying a foreclosed property.
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