Other things to consider when buying an REO home
Besides finding listings and strengthening your offering once you’ve found an REO home you like, there are a few other important factors to keep in mind when deciding if a particular REO property is right for you.
Get a real estate agent with REO experience
When looking at foreclosures and other investor-owned properties, it helps to work with someone who is familiar with the REO market, as these properties have their own unique characteristics. Here’s what you can expect from an experienced REO listing agent:
- They will know how to structure an offer that will appeal the most to a lender or investor.
- They will know what they expect to see in the offer and, just as importantly, what they don’t know.
- They will likely have some experience telling homebuyers what needs to be done to make the house livable.
Our friends at Rocket housesSM can help you connect with a real estate agent who understands your goals as well as your budget.
Get a home inspection
A home inspection is the key when it comes to buying an REO property. While the lender or investor is unlikely to resolve any issues that result from the inspection, it is still important to resolve one.
With a home inspection, you will find out everything that is wrong with the house before you move in, and you will have a better idea of what questions to ask the seller before closing the deal.
If there are absolute breaches of agreement regarding repairs, you will be able to withdraw from the agreement prior to purchasing and will only lose your deposit. If you and your real estate agent can get the investor to agree to an inspection possibility, you might not even lose that.
Understanding the general and special guarantee acts
In most door-to-door sales there is usually a general guarantee deed. As the general guarantee deed tells you a few things:
- The seller has the right to sell the property to you as it currently owns it.
- There are no other legal issues or claims to the property by anyone other than the seller.
If you get a general security deed, no one can claim any issues with your title until you own the property. The general guarantee deed also lets you know that there are no privileges and that the property belongs freely to the seller.
However, with an REO sale, you may not be able to get a general warranty deed. In this situation, it is common to receive a special guarantee deed. In this case, “special” does not always mean “best”.
With a special deed of collateral, the mortgage investor is likely to only guarantee that there are no additional title issues that have been created since taking control of the property. Although they have the right to sell the property, they cannot pledge against other issues of pre-existing title or privileges.
For this reason, it is important to take precautions when purchasing an REO property.
Consider whether to buy a title deed policy
One thing you might want to consider with an REO property is purchasing a title policy. You are required to obtain a lender title policy, which protects the lender’s investment in the event of a new property claim against your home. But taking extra steps to get a property title policy protects your investment against any pre-existing claims on the property.
The owner’s title policy could come in handy when purchasing an REO property, as many available properties have been foreclosed. This means that the previous owners have likely had financial problems and you may need to worry about tax privileges or judgments on the property.
Having an owner title policy could help you if something did happen.
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