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
Beware These 5 Common Work-From-Home Scams
Beware These 5 Common Work-From-Home Scams

You can spot scammers and con artists with a little know-how.

Beware These 3 Tax Penalties on Retirement Accounts
Beware These 3 Tax Penalties on Retirement Accounts

Protecting a nest egg is tough — but you can make the situation far worse with some boneheaded mistakes.

8 Things You Can Buy for $1 or Less on Amazon
8 Things You Can Buy for $1 or Less on Amazon

They say you get what you pay for — but not always. Sometimes, you can uncover a good deal at a great price.

12 Products to Keep Your Car Clean and Organized
12 Products to Keep Your Car Clean and Organized

These items will help put your vehicular mess to rest — and each is available for less than $20 on Amazon.

5 Monthly Bills You Can Easily Negotiate Down
5 Monthly Bills You Can Easily Negotiate Down

Here’s how to bring down recurring expenses and save hundreds — or even thousands — of dollars each year.

View this page without ads

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

Get Started

Most Popular
11 Senior Discounts for Anyone Age 55 or Older
11 Senior Discounts for Anyone Age 55 or Older

There is no need to wait until you’re 65 to take advantage of so-called “senior” discounts.

20 Things That Are Actually Worth Stockpiling
20 Things That Are Actually Worth Stockpiling

You don’t need a year’s supply of toilet paper to survive an outbreak, but consider stocking up on these items.

Can a Twice-Divorced Woman Claim Social Security Survivors Benefits?
Can a Twice-Divorced Woman Claim Social Security Survivors Benefits?

Understanding survivors benefits rules is the key to getting the most from your benefit.

9 Things You’ll Never See at Costco Again
9 Things You’ll Never See at Costco Again

The warehouse store offers an enormous selection, but these products aren’t coming back.

These Are the 10 Worst Cars for Depreciation
These Are the 10 Worst Cars for Depreciation

Two types of vehicles are especially likely to see steep plunges in value.

Never Buy These 10 Things With Your Credit Card
Never Buy These 10 Things With Your Credit Card

Credit cards offer many conveniences and protections, but sometimes it’s simply smarter to keep the plastic tucked away.

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

These practical products make everyday life a little easier.

10 Things I Always Buy at Trader Joe’s
10 Things I Always Buy at Trader Joe’s

From snacks to sweets to side dishes, stock your cart with these time-tested favorites on your next TJ’s run.

8 Surprising Household Items You Can Sell for Fast Cash
8 Surprising Household Items You Can Sell for Fast Cash

Sometimes, the humblest household items are worth the most money.

19 High-Paying Jobs You Can Get With a 2-Year Degree
19 High-Paying Jobs You Can Get With a 2-Year Degree

There are easy high-paying majors available in the U.S. — and no bachelor’s degree is required. We’re here to help you find easy degrees that pay well.

Cut These 11 Expenses Now If You Hope to Retire Early
Cut These 11 Expenses Now If You Hope to Retire Early

Like the idea of financial independence? Part of the FIRE equation is cutting costs.

5 Ways Social Security Will Change in 2021
5 Ways Social Security Will Change in 2021

These adjustments will affect both workers and retirees in the new year.

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.

15 Products You Need — Even If You Didn’t Know It
15 Products You Need — Even If You Didn’t Know It

Discover some must-have products on Amazon that you didn’t even know you were missing.

7 Tips for Building an Emergency Food Supply
7 Tips for Building an Emergency Food Supply

A pandemic or natural disaster could leave you reliant on your existing emergency food supply. Is your pantry well-prepared for emergencies? Knowing what to stock up on for emergencies can be a difficult task and we’re here to help.

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.

These Are the 4 Best Medicare Advantage Plans for 2020
These Are the 4 Best Medicare Advantage Plans for 2020

Medicare Advantage customers themselves rate these plans highest.

8 Things You Should Buy at Restaurant Supply Stores
8 Things You Should Buy at Restaurant Supply Stores

You don’t have to be a chef or a restaurant owner to shop here.

11 Things Retirees Should Always Buy at Costco
11 Things Retirees Should Always Buy at Costco

This leader in bulk shopping is a great place to find discounts in the fixed-income years.

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.