How to Steal a House – 4 Steps to Buying an REO

Photo (cc) by Casey Serin

The housing market is a depressing subject for homeowners but exciting for those looking to buy.

“In 30 years, I’ve never seen a market like this,” says Denny Grimes, an agent in Fort Myers, Fla. Thanks to a glut of foreclosed properties, here it’s possible to buy a house for $70,000 that three years ago might have sold in one day for $250,000. While some would argue that these homes were never worth their bubble-era prices, there’s no argument that these houses are now selling for significantly less than it cost to build them.

And the party’s hardly over. According to real estate website RealtyTrac, there may be even more foreclosures in 2011 than last year. And in places like Fort Myers in Lee County, Florida, nearly one in three houses are still empty.

But getting a steal isn’t as simple as it might sound. It requires additional, well, homework. It also requires something that isn’t part of the traditional home buying process: speed.

Money Talks recently visited Fort Myers to learn how to bottom-fish in one of the nation’s worst – or best, depending on your point of view – housing markets. Watch the video below, then read on to learn how to “steal” a house.

Now let’s explore two options for buying houses super-cheap. Each has different hurdles.

Judicial foreclosure auctions

As Stacy mentioned in the video above, buying a foreclosure at judicial auction (as opposed to the heavily-advertised public auctions you see at sites like auction.com) will often net the lowest price. But buying this way isn’t anything like the typical process.

  • Auctions often require a 5 – 10 percent deposit before you can bid.
  • Once you win, you need to pay in full, typically within 24 hours. Which means, of course, there’s no time to get a mortgage. And if you don’t show up with the money? Kiss your deposit goodbye.
  • It’s often impossible to do more than a drive-by inspection. Many homes sold at foreclosure auctions are still occupied, so there’s no opportunity to even see the inside, much less do a thorough inspection of the roof, foundation, heating and air conditioning, etc.
  • Depending on the state where the auction is held, you may face hidden mortgages or liens. You can read about how one woman almost paid $14,000 for a foreclosure property that came with an outstanding $140,000 bill in our story How NOT to Buy a Foreclosure. You can avoid this by paying $50-200 for a title search on the property before you bid, but that’s more money up front with no guarantee of winning the house.
  • The competition for these houses is often fierce. You could be bidding against well-heeled investors with a lot more time, expertise, and cash than you’re bringing to the table.

Check out our story How to Buy a Foreclosure to learn what the pros do. RealtyTrac has advice on buying homes at auction too. But it’s full of self-serving “advice” suggesting you need to pay them for their information: You don’t. To learn more about the auctions you see advertised on TV, see Real Estate Auction Warning.

Real estate owned properties (REOs)

When a bank assumes ownership of a house through the foreclosure process, it becomes what’s known as a “real estate owned” property, or REO. Since banks are in the business of lending money, not managing property, they often want to get rid of these homes fast. They sell their houses the same way you’d sell yours: They hire a real estate agent and list it. Unlike the way you’d market your home, however, the bank often does nothing to fix it up. They list it as-is, and to facilitate a quick sale, sometimes price it well below the market.

This is the market we talked to Fort Myers agent Denny Grimes about. As he explained in the video above, the REO market can net you a steal, but you can’t approach it with the same slow, methodical process you’d use in the traditional home-buying process. How it’s done:

  1. Learn to spot a deal when you see one. Buying a home cheap means knowing what “cheap” is. When a below-market REO comes on the market, you’re going to have to make a snap decision. So learn values beforehand and find an agent that’s plugged in to the REO market that can help.
  2. Be pre-approved for a loan. Be ready to pay for a bargain when you find one. That means having financing pre-approved. See our story Follow These 3 Steps to Save Thousands on Your Next Mortgage.
  3. Be ready to pounce. “If it’s new on the market, it’s not something you can look at on Friday, sleep on it, and think about making an offer on Monday,” says Grimes. “By then, there will be several offers and it’s a bidding war.” If you think you’ve found a bargain, Grimes suggests putting in an offer immediately because “it’s important to control the property before worrying about the details.” If the bank accepts your offer that includes a clause making it contingent on an inspection, you’ve “locked up” the property without being on the hook. Grimes says, “Once you get it locked up, you can go through due diligence and if you think you overpaid you can back away.”
  4. Bid as high as you’re willing to go. The rules for buying an REO are nearly opposite those for buying a home the traditional way. Grimes says, “It’s not about how much under asking price you should offer, it’s really how much over asking price you should offer,” because the competition for bargain homes is fierce. How high do you need to go? “I was working with a buyer last week. We went 10 percent over asking price and thought we were good, but we were outbid,” says Grimes. “The bottom line is the buyer has to make their strongest offer first.”

So, can you find a housing steal? Depending on where you’re looking, absolutely. But this isn’t your parent’s house-buying process. As Denny Grimes says, “You don’t steal in slow motion.”

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
9 Ways to Get Affordable Vet Care
9 Ways to Get Affordable Vet Care

Medical care for your furry friends can be expensive. Here are some tips to get affordable vet care.

Stop Buying These 19 Things Online
Stop Buying These 19 Things Online

The internet has changed how we shop. But for some things, you’re still better off buying the old-fashioned way.

It’s Worth Paying Extra for These 14 Items
It’s Worth Paying Extra for These 14 Items

Here’s where to find the sweet spot at the intersection of price and quality.

7 Free Tools for Saving More Money at Amazon
7 Free Tools for Saving More Money at Amazon

Use these websites and other tools to save money — or earn extra cash — when shopping at Amazon.

10 Clever Ways to Make Extra Money
10 Clever Ways to Make Extra Money

Looking for additional cash? Here are a bunch of options that are accessible to anyone with internet access.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
10 Things Frugal People Never Buy
10 Things Frugal People Never Buy

If you’re a true tightwad, the mere thought of spending money on these items gives you the willies.

10 Useless Purchases You Need to Stop Making
10 Useless Purchases You Need to Stop Making

You might as well flush your money down the loo if you spend it on these things.

The 16 Cars Most Likely to Last 200,000 Miles
The 16 Cars Most Likely to Last 200,000 Miles

One automaker takes half the spots on a list of the longest-lasting vehicles.

7 Social Security Rules Everyone Should Know by Now
7 Social Security Rules Everyone Should Know by Now

Confusion over Social Security is a shame, considering how many of us will need this money badly.

9 Shopping Mistakes to Avoid at Costco
9 Shopping Mistakes to Avoid at Costco

Are you missing out on serious savings at your favorite warehouse club?

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

They don’t make coffee makers like this anymore.

7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

14 Things You Should Stop Buying in 2021
14 Things You Should Stop Buying in 2021

These convenient household products come with hidden costs that you might not have considered.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

Is Writing a Check Still Safe?
Is Writing a Check Still Safe?

Every time you pay by check, you hand your bank account numbers to a stranger.

6 Ways to Protect Your Retirement Accounts From Hackers
6 Ways to Protect Your Retirement Accounts From Hackers

Imagine having $245,000 stolen from your retirement account — and not being reimbursed.

8 Things You Should Replace to Improve Your Life Today
8 Things You Should Replace to Improve Your Life Today

Being frugal isn’t smart if you put off replacing these items.

This Is the Most Dependable Car Brand in the U.S.
This Is the Most Dependable Car Brand in the U.S.

This brand’s vehicles are least likely to give drivers repair headaches, according to J.D. Power.

7 Hidden Sections of Amazon Every Shopper Should Know
7 Hidden Sections of Amazon Every Shopper Should Know

These little-known departments of Amazon are gold mines for deal-seekers and impulse shoppers alike.

9 Millionaires and Billionaires With Surprisingly Frugal Habits
9 Millionaires and Billionaires With Surprisingly Frugal Habits

Some of the world’s richest women and men drive modest cars, clip coupons and love a bargain.

7 Income Tax Breaks That Retirees Often Overlook
7 Income Tax Breaks That Retirees Often Overlook

Did you realize all these tax credits and deductions exist — or that they apply to retirees?

7 Social Security Benefits You May Be Overlooking
7 Social Security Benefits You May Be Overlooking

There’s more to Social Security than retirement benefits.

13 Amazon Purchases We Are Loving Right Now
13 Amazon Purchases We Are Loving Right Now

These practical products make everyday life a little easier.

The 6 Best Investing Apps for Beginners
The 6 Best Investing Apps for Beginners

If you’re looking to ease into investing in the coronavirus economy with just a little money, check out these easy-to-use tools.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.