An AZ property that is called "REO", is a listing that is Lender Owned, Foreclosed-upon, Corportate Owned, etc.  The trustee sale process, or auction, has already taken place.

There are some very good deals out there for investors and informed buyers, and purchasing an REO can be very exciting for those who enjoy fixer-uppers, or investing and re-selling or renting properties.

I do recommend, however, doing a little homework before deciding if this type of transaction is for you.  A strong sense of humor;  not getting your heart set on one particular property can be very important.  There is a lot of competition out there for these kinds of purchases!  Here are some thoughts to keep in mind.

1.    Condition:  REO properties come with little or no warranties or guarantees.  Sometimes they are model homes lost by builders, and other times they’ve been defaced, destroyed, stripped, or abandoned. An open mind is essential.

2.  No Low-Balls.  Please, REO sellers are aware of their competition and the surrounding market statistics. The home is priced accordingly to its condition, location, and market value. Have your agent run comparables for you to study.  Make a fair offer.  AS-IS means, point blank, as-it-IS.  You will be signing addenda acknowledging this fact.  With the help of your agent, inspections and community disclosures can help in your decision making.

3.  Verbal acceptance.  When making the offer, the seller will be negotiating verbally through their agent.  You will not be under contract until you have a fully signed offer by both seller and buyer, and subsequent offers will be accepted by the seller until that time.  Often they ask for your highest and best offer before accepting in writing.

4.  SPDS and CLUE.  This is the Seller Property Disclosure Statement and Insurance Claims history.   You probably will not receive these disclosures and your contract will state this condition.  The obligation for the seller to disclose material defects remains, but as a buyer, inspect, inspect, inspect!!  Obtain a blank SPDS for reference during your inspection period.

5.  Time.  Negotiating takes a little longer.  The selling bank may be out of state.  Your earnest money may need to be in certified form.  You may have to provide the pre-qualification form for financing with your offer, or proof of funds, if cash.

6. Closing costs.  Asking for them might result in having your offer rejected.  Have your agent call the seller’s agent prior to submitting an offer. Negotiate for what you want from the very beginning.

7. Utilities.  You MAY have to turn them on yourself.  You may have to have the home de-winterized.  Inspection periods may be lowered from 10 days to 7.  Discuss this with your agent.

8. Additional Addenda.  Sellers almost always have their own addenda, geared to protect their interests. It can nullify many parts of your original AZ State Contract.  The Seller may also have the right to cancel the contract clear up to COE – review these terms carefully with your agent.

9. 30 day COE.  REO sellers like to close in 30 days or less, preferably very near to month’s end.  If there are deadlines involved, there can be per diem fees involved.

As you can see, purchasing a REO property is not for everyone.  These are just a few brief differences between a REO and conventional property. The rewards CAN be worth the risk – work with a professional versed in the differences.  Do your research.