Buying a REO home provides a great opportunity for the first time buyer or the savvy investor. But it's not the same as buying a home through normal channels. Before you start the process of buying a REO home, you need to understand what's involved.

REO stands for "real estate owned", and REO homes are homes which have been subject to foreclosure but have failed to sell at a foreclosure auction. The home then becomes the property of the lender (usually a bank), which needs to off-load it as soon as possible. This can present a good opportunity to obtain a property below market value, with a clean title and vacant possession.

One word of caution. In areas where there are large numbers of foreclosures taking place, you may indeed find that REO properties are selling at 20-30 percent below market value. But don't count on it. The bank wants to recover as much of its money as it can, so it will endeavor to sell as near market value as possible. So check the market prices of similar homes in the area and calculate the costs and time of repairs, before deciding that a property is a bargain.

So how do you go about buying a REO home?

1. Your first step should be to attend foreclosure auctions - not to buy properties, but to find out properties that don't sell. Note down the addresses and drive by until you see a For Sale notice outside. Then contact the realtor. Remember that only certain realtors specialize in REO sales, so the realtor for one will no doubt have others on its books.


2. Every lender has its own "selling protocol" for REO homes. So once you have identified a property, find out the selling protocol for the bank that is marketing it.


3. Before making an offer, check with the bank whether there are any pending offers in the pipeline. Also get your agent to check whether there is permission for any extensions to the property.


4. The bank will not accept an offer direct from you. They will only accept it from an agent or broker.


5. If you need a loan, get your loan application underwritten, not just pre-approved or pre-qualified. (Note that banks will not usually provide loans on properties they themselves are selling.)


6. When you make an offer to purchase, the bank will almost certainly respond with a counter-offer. This is to demonstrate to its shareholders, auditors etc. that it has made every effort to get the best price. You can still continue to negotiate to get the best price you can.


7. The bank will not carry out repairs to the property - you are buying "as is". They will however provide a termite clearance. You will be allowed immediate access to do your own inspection, at your own expense. Make sure your offer includes an inspection contingency that allows you to withdraw should the inspection reveal major problems. Note that sometimes, if you do declare your intention of withdrawing, the bank will drop its price to avoid the hassle of putting the house back on the market.


8. Remember banks are exempt from disclosure regulations, so usually you will not get a disclosure about history, conditions, etc. However, if there are real estate agents involved (yours or theirs), they are required to provide you with any disclosure statements they have.


9. The bank will ask you how quickly you can close escrow -- you should be able to close within 10 days for the best chance of acceptance - and whether your offer is contingent on anything, e.g. the sale of your current residence. They may also check your credit score.


10. Occasionally, lenders will in fact carry out renovations. However, you are much better advised to purchase the home before renovations. You will get a better price and you will have control over the work done and its quality. The reason banks sometimes do it is to improve the price they can get, but the work that is done is usually cheap and of poor quality.

Buying a REO home is not such a simple and straightforward process as some people imagine. After going through all these procedures, you may still find the bank keeps you waiting while they try to find a better offer. To get the best chance, go after houses that have been on sale for 30 days or more. If you know the process and can negotiate all the ins and outs, you stand a chance of finding a very good deal.

If you would like to know how you can find the best selection of REO homes and all other kinds of foreclosures, come and visit http://www.bizwrite.co.uk/realestate/foreclosures.html

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