REO

• REO stands for Real Estate Owned and refers to foreclosure properties that did not sell through the county courthouse immediately following the foreclosure proceedings. These properties are the responsibility of the lender to sell and remove from their portfolio of bad assets. Banks and lenders all work a little differently, but they all have a similar goal: to get the best possible price for a foreclosed home to recoup some of the value of the loan.
  
  

Time Frame

• Some lenders will keep pricing high if they believe a change in the market is pending or that the house is likely to sell at the listed amount. However, the longer a foreclosed property is on the market, the cheaper the price usually gets. When negotiating a foreclosure deal, you should consider how long the property has been on the market. If it has been longer than the average Days on Market (DOM) for your area, the bank may be willing to consider a lower price point. You can learn the current DOM for your area by reviewing a local real estate journal or talking to a real estate agent.
  
  

Neighborhood

• In a declining neighborhood, a lender is less likely to keep pricing high. Prices may drop to pennies on the dollar, especially if other homes in the neighborhood have already set this trend. These homes are negotiable but can be risky to invest in. Be sure you know how much the home will cost to rehab and the risks of investing in that neighborhood. The rehab costs should be accounted for in the price you present to the lender. In crime-ridden neighborhoods, for example, you may have to hold on to a property for years before the area shows promise. In this case, you should account for the costs of extended mortgage payments in your offer.
  
  

Requirements

• Check the listing information to determine how flexible the lender is in pricing. Some lenders seeking a quick closing may be more willing to negotiate on price. In other circumstances, the listing will indicate that the lender is not willing to negotiate and that they have a list of requirements the buyer must meet to make an offer on the property. You can contact the real estate broker for the property to discuss your intent to make a low offer on the property. The broker can tell you whether the bank or lender is willing to negotiate or if they are willing to hold on to the property until it sells at the current price.