The Lund Team Real Estate Blog

I was amazed to discover that the “down market” started almost four years ago. We closed our first REO in June 2006. It was a small cottage on a large lot in Vista. We worked with Countrywide (remember them?) and sold it in record time. Not because it was a good deal per say, but because it was a foreclosure.
 
There is some weird perceived value with foreclosures. Throw “bank owned” up on any sign and people swarm. It could be overpriced, dilapidated, or both, but Buyers gravitate toward these REO’s like bees to honey. Foreclosures can be purchased below market, yes, true, but more often than not Buyers pay close to (or above) what recent comps indicate the value to be.
 
Pros to purchasing a foreclosure:
The property can be purchased below market. This is especially true on properties that must be sold to cash Buyers due to condition. 
You are dealing with an entity (bank) that is in the market to lend money, not own real estate. The bank is motivated to move the property quickly.
The bank usually responds to offers within 3-5 business days. No wait game like short sales.

Cons to purchasing a foreclosure:
What you get is what you see. Most REO’s transfer in AS-IS condition. This means no repairs and no termite.
Limited disclosures. The former owner/occupant is long gone so the limited disclosures provided are completed by agents and/or asset managers. Banks are exempt from many of the statutory disclosures. This makes thorough home inspection critical.
Multiple offers and bidding wars.
Accelerated due-diligence period. Most banks want the Buyer to conduct their inspections within 10 days after Acceptance, not the standard 17 days. There is usually less time provided to secure loan approval as well.