The most common type of foreclosure property youll encounter in your home search is a Real Estate Owned, or REO, property. REOs are properties that have been foreclosed and are now owned by the bank.

REOs may be vacant or in need of repair. But often they look and feel just like other homes for sale, and theyre listed by a real estate agent. Although theyre typically sold as-is, its not uncommon for an REO to be in move-in condition. But the process of buying an REO is different than other home purchases.

With the help of a qualified real estate agent who knows the terrain of the REO market, your REO transaction will run more smoothly and youll likely get a great deal in the process.

RE/MAX agents lead the industry in distressed property training. Working with an agent experienced in REO transactions will make the difference between a successful purchase and a frustrating, confusing experience.

An REO property is one thats been foreclosed on and is now owned by the bank.

REO properties fall into two categories:

Move-in condition: The home is in acceptable condition and not in need of rehabilitation. You could buy this property and move in quickly.

Damaged: A damaged REO generally needs repairs and rehabilitation before you can move in. These types of REOs are attractive to investors and some buyers who arent daunted by the work involved in rehabbing a property. Often, you will get a bigger discount on damaged REO properties, but you have to consider refurbishing costs.

Where can you find REOs for sale?

Banks are eager to sell and get these properties off their books. In most cases, theyll enlist an agent to clean up the property and list it for sale in the MLS, which means youll find these properties listed alongside homes in the neighborhood that are being sold traditionally.

If youre looking to buy an REO, its important to work with an agent who has experience with foreclosures. Many times the bank will insist on an as-is sale, and an experienced agent can help you work through your decision whether to move forward with the purchase based on the propertys refurbishing needs.

Pros of buying REOs:

Often, youll pay a below-market price for the property.

The process is similar to a normal home purchase in that you can secure financing using a traditional mortgage. (Buying an REO property is nothing like buying a foreclosure property at auction with cash.)

Youll be able to do inspections, purchase title insurance and secure financing before completing the purchase.

Cons of buying REOs:

Many banks will require an as-is purchase, and if there are problems or necessary repairs, paying for them is your responsibility.

Banks rarely accept anything less than the asking price. Theyve already done a lot of research to come to a price that makes sense for them. (Keep in mind that if most sales in your market are selling above asking price anyway, this point isnt necessarily a con for buying an REO property.)

The process can take longer than a regular home sale.

Foreclosure proceedings and laws vary by state. Never make assumptions. Work with an agent who understands REOs and can explain the process in the state where the property is located.

Heres something you might be wondering: Whats the difference between an REO property and a short sale?

An REO property is one that has already gone through foreclosure and is currently owned by the bank, which is trying to sell it to a buyer.

A short sale is a real estate transaction that takes place when an owner owes more on the mortgage than the house is currently worth and the bank agrees to a sale for less than the full mortgage balance in order to avoid foreclosure. A property involved in a short sale is not bank owned.

The number of short sale transactions has increased in recent years, and youre likely to run into homes like this on the market as you view properties. As with REOs, short sales can be complicated, so its extremely important to find a real estate agent who is experienced and specifically trained.

Despite what you may hear on TV, buying foreclosures is not a get-rich-quick scenario. REOs can offer a way to buy property at below-market prices, but the process is different than an average home sale. Having a solid agent who is trained and educated in local REO transactions is the best approach for success.

Finding the Best Agent

Working with a real estate agent who is educated and experienced in REO transactions is an important step toward a successful purchase.

2. How many REO properties have you successfully helped clients purchase?

3. Were the REO properties youve helped clients buy in the local area?

In addition, the same tips apply here for choosing a real estate agent as those outlined in the Tips on Choosing and Working with a Realtor

Do not venture into REO territory alone. Many RE/MAX agents are thoroughly trained in REOs and have a solid reputation for success. Choose your agent wisely.

Increase your chances of a successful REO purchase by avoiding these mistakes:

1. Hiring an inexperienced agent: Work with a Realtor who is well versed in foreclosures in the area youre searching. Look for someone with advanced training and a great deal of experience in distressed properties.

2. Not knowing the law: Foreclosure laws vary by state. What your neighbors cousin did in Florida wont necessarily play the same in California. Consult a Realtor familiar with your states laws who has facilitated REO purchases in your area in particular.

Get preapproved for a mortgage. This is a good idea whether you intend to buy an REO or a traditional property. Not only will preapproval help you set your price range, but it will also help speed up the closing process after your offer is accepted.

3. Aiming too low: Its true that banks want foreclosures off their books, but that doesnt mean theyll accept a lowball offer. When making an offer, your agent should justify it with comparable data. An extremely low offer can derail negotiations. An experienced agent can coach you through the offer process.

4. Considering price only: Theres more to an REO property than price. Some properties have extreme damage, and the cost of repairs could easily eat up any discount youre getting. Have the property inspected and see it for yourself. Objectively assess its value based on physical condition, location and your ability to improve the property.

5. Thinking short-term: Understand local market conditions your agent can explain them in detail before jumping in. Consider not just whats happening now, but also where the market may be headed as you define your goals for your REO purchase. Its common to buy an REO to live in long-term, or to keep as an investment property for rent.