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InvestingResale

Resale (After Foreclosure)

Also called Post-foreclosure resale, Flip, REO resale

In short

A resale is the last stage of the foreclosure lifecycle: a buyer or investor who bought the property at auction or from the bank repairs it, then lives in it, rents it out or sells it again on the open market.

Who sells
The investor or buyer who bought at auction or as an REO
Typical timeline
3 to 9 months for a repair-and-resell
Key number
After-repair value (ARV)
Financing
Hard money or cash to buy; buyers on resale use standard mortgages

Where it fits in a foreclosure

Resale (After Foreclosure) belongs to the resale stage.

  1. 1Missed paymentsThe owner falls behind; the servicer sends notices and may offer workout options.
  2. 2Pre-foreclosureA notice of default or lis pendens is filed. The owner can still sell, catch up or negotiate.
  3. 3AuctionThe property goes to a public sale, usually for cash, as-is and often without an inspection.
  4. 4Bank-owned (REO)If no one outbids the lender, it takes the property back, clears most title issues and lists it.
  5. 5ResaleA buyer or investor purchases, repairs and occupies, rents or resells the home.You are here

Where resale fits in the foreclosure lifecycle

After a foreclosure auction, a property ends up with either a third-party bidder or the lender as an REO (bank-owned) property. Resale is what happens next: the new owner repairs the home and puts it back into use, as a primary residence, a rental or a home listed for sale again. This is how most distressed homes return to the regular market.

The three resale paths

  • Repair and resell (flip): buy below market, renovate and sell at the after-repair value. Profit depends on the purchase price, repair budget, holding costs and selling costs.
  • Repair and rent: keep the home as a rental, often refinancing once it is repaired, as in the BRRRR strategy.
  • Owner-occupy: a buyer purchases an REO or auction home to live in, often with a renovation loan such as an FHA 203(k).

What to check before buying a resale

If you are buying a home that was recently foreclosed and resold, ask for the scope of the renovation, the permits pulled and the contractor's warranties. A full home inspection matters more than usual, because quick cosmetic work can hide plumbing, electrical or roof problems. A title search confirms the foreclosure cleared earlier liens, and title insurance protects you if it did not.

Example

A repair-and-resell after an REO purchase

An investor buys a bank-owned home for $180,000 and budgets $35,000 for repairs. Recent comparable sales put the after-repair value at $275,000. After about $12,000 in holding and financing costs and $19,000 in selling costs, the investor's profit is about $29,000, before taxes. If repairs had run $20,000 over budget, most of that profit would have disappeared, which is why investors use the 70% rule to set their maximum purchase price.

Resale (After Foreclosure) vs. Real Estate Wholesaling

Resale (After Foreclosure)

A resale is the last stage of the foreclosure lifecycle: a buyer or investor who bought the property at auction or from the bank repairs it, then lives in it, rents it out or sells it again on the open market.

Real Estate Wholesaling

Real estate wholesaling is putting a property under contract at a discount and then assigning that contract, or reselling the property, to another investor for a fee, without renovating it.

The differenceIn a resale, the investor takes title, repairs the home and sells it. In wholesaling, the investor assigns the purchase contract to another buyer for a fee and never owns or repairs the property.

Frequently Asked Questions

Related terms

After Repair Value (ARV)InvestingAfter repair value (ARV) is the estimated market value of a property once planned repairs and renovations are complete. Investors use it to decide how much to pay for a fixer-upper.The 70% RuleInvestingThe 70% rule is a fix-and-flip guideline: pay no more than 70% of a property's after repair value (ARV) minus the cost of repairs. It leaves room for profit, holding and selling costs.REO / Bank-Owned PropertyForeclosure processAn REO (real estate owned) or bank-owned property is a home a lender took back after it failed to sell at foreclosure auction. The lender then sells it, usually through a real estate agent.BRRRR MethodInvestingThe BRRRR method is a rental investing strategy: buy a distressed property, rehab it, rent it, refinance based on the higher value, and repeat with the cash pulled out.Hard Money LoanMortgages & financingA hard money loan is a short-term loan from a private lender, secured mainly by the property's value rather than the borrower's income. Investors use it to buy and renovate properties quickly.Home InspectionBuying & closingA home inspection is a professional visual examination of a home's structure and systems, ordered by the buyer to find defects before closing. It usually happens during the inspection contingency period.Foreclosure AuctionForeclosure processA foreclosure auction is the public sale of a property after a borrower defaults, where the highest bidder buys it, usually with cash and as-is. If no one outbids the lender, it becomes bank-owned.Comparative Market Analysis (CMA)Buying & closingA comparative market analysis (CMA) is a real estate agent's estimate of a home's value based on recent sales, pending sales and active listings of similar nearby properties.

Learn more in the knowledge base

Inspecting and Negotiating on a Bank-Owned (REO) PropertyGuide · 7 min readBank-owned homes are sold as-is, often after sitting vacant, so a thorough inspection is the most important step in the purchase. This guide covers how to get the home ready to inspect, what to look for, what banks will and will not negotiate and how to handle appraisal and title issues before closing.How to Finance a Foreclosure or Distressed PropertyGuide · 7 min readDistressed properties are harder to finance than move-in-ready homes. Condition, timing and the seller's terms all limit which loans will work. This guide matches financing options to each kind of distressed purchase and explains the trade-offs.Title, Liens and Due Diligence on Distressed PropertiesGuide · 9 min readDistressed properties often come with debts and paperwork problems attached. A title search, a clear understanding of which liens survive a sale and the right title insurance protect you from inheriting someone else's obligations. This guide explains what to check and when.
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Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.