Interested in buying bank owned property?

REO vs. Foreclosures

An REO (Real Estate Owned) is a property that goes back to the mortgage company or the bank after an unsuccessful foreclosure auction. Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property "reverts" to the bank. It becomes an REO, or "real estate owned" property.

REO Properties for Sale

The bank now owns the property and the mortgage loan no longer exists. The bank will handle the eviction, if necessary, and may do some repairs. They will negotiate with the IRS for removal of tax liens and pay off any homeowner’s association dues. As a purchaser of an REO property, the buyer will receive a title insurance policy and the opportunity to investigate the property.

A bank owned property may or may not be a great bargain. Do your homework before making an offer (we can actually help with this). Make sure that the price you pay (if you’re successful) is comparable to other homes in the neighborhood or better. Consider the costs of renovation, including time to complete them. Don’t get caught up in a ‘bidding war’ and pay over market value- this is where we can help.

The Buying Process for Bank-Owned Property (REO’s)

Each bank/lender works a little differently but here are general guidelines. Once you make an offer to purchase, banks generally present a "counter-offer." It may be at a higher price than you expect, but they have to demonstrate to investors, shareholders and auditors that they attempted to get the highest price possible. You should plan to counter the counter-offer.

Your offer or counter-offer will probably have to be reviewed and approved by several individuals and companies. Even once an offer is accepted, the bank may insert wording like “..subject to corporate approval with 5 business days."

Property Condition

Banks generally sell a property in "as is" condition. Most will provide a Section 1 pest certification, but not unless you include it in your offer and negotiate the point. They will allow you to get all the inspections you want (at your expense), but they may not agree to do any repairs.

Your offer should include an inspection contingency period that allows you to terminate the sale if the inspections reveal unanticipated damages that the bank will not correct.

Even though you agreed to “as is," always give the bank another opportunity to make repairs or give you a credit after you’ve completed your inspections. Sometimes they’ll re-negotiate to save the transaction instead of putting the property back on the market.

Most banks will not provide financing on their REOs so it is better to find your own lender and get pre-approved.

Making an Offer

Before making an offer, have your agent contact the listing agent and ask the following:

• Are there any inspection reports?
• What work has the bank agreed to?
• Is there a special "as is" form?
• How long does it take the bank to accept an offer?
• How does your agent deliver the offer?

Offers are usually faxed to the bank and there is no formal presentation. Provide the listing agent with a pre-qualification or better yet, a pre-approval letter and buyer biography. Make your offer easy to accept. Keep in mind: nothing happens evenings and weekends (banks are closed).