Should I Get an Appraisal First?
You should certainly check out the property and get a comparative market analysis (CMA) so that you know what similar properties have sold for. That should be your guide as to how much to bid.

Some bidders will offer close to market price. Others will try to sneak in with a low bid. Sometimes, if there’s little interest in the house, the low bid¬der can walk away with it.

What Kinds of Problems Do REOs Have?
The problems with REOs are usually far less than for other repossessed property, but they do exist and can be severe on occasion. Frequently, the lender will pay for a policy of title insurance and will guarantee that your loan is indeed a first (no hidden liens) and that the title is clear.

TRAP

It’s up to you to investigate the property thoroughly, usually before you make your offer. Know what you’re buying. After the purchase you’re probably stuck with it.

After slipping 0.7% in February (revised from a preliminary estimate of a 0.6% decline), housing starts tumbled 11.9% in March to 947,000 units. After two consecutive months of sharp gains, there was a large decline in the highly volatile multi-family starts category. Single-family starts fell for the twelfth consecutive month. The median of analysts’ projections (as surveyed by Bloomberg) was for total starts of 1.01 million. Note that there were minor upward revisions to starts in January and February. For the third consecutive quarter, housing starts fell at a better than 30% annualized rate. The first quarter average for housing starts is down an annualized 34.5% versus the fourth quarter average. This result indicates that residential investment will again be a significant drag on 1Q real GDP growth.

This bypasses the REO department entirely, at least with regard to locat¬ing the properties. Remember that the foreclosure process involves adver¬tising the sale of the property and then holding a public auction. At that public auction, a price is paid and a deed is given, which is then recorded. All of this is public information, and if you have the time, you can go to the hall of records and dig it up. But there’s a better way.

That, of course, is the trick. With some lenders being so secretive about them, you won’t find REOs waiting for you to come along. In fact the most difficult part about this area can be finding the properties.

The most logical first step is to check with a lender. Go into your local bank branch and ask for their REO department. I tried that with five different banks. In four cases the people I talked with had no idea what I was talking about. In the fifth the person said that she knew and then connected me with their “real estate division.” It turned out to be a subsidiary of the bank that was a residen­tial real estate sales office. They didn’t handle REOs at all. It’s pretty hard to get information from the lender when the lender’s own people don’t know what’s going on!