Buying Bank Owned Properties (REO)
Would you like to buy a bank owned property?
We have all watched the late night infomercials and thought that it would be great to buy one of the homes shown on the infomercial. Sounds like a great idea and it could just happen, but first of all you should take a moment and look at some facts and prepare yourself.
REO vs. Foreclosure
An REO (Real Estate Owned) is a property that goes back to the mortgage company after an unsuccessful foreclosure auction. Most foreclosure auctions do not even result in bids. If there was enough equity in the property to pay off the loan, the owner would have most likely sold the property and paid off the bank. That is why the property ends up at a foreclosure or trustee sale.
The foreclosure sales begin with a minimum bid that include the loan balance, any accrued interest, attorney fees and any other costs associated with the foreclosure process. If you want to bid at a foreclosure auction, you must have a cashiers check on hand for the full amount of your bid. If you are the successful bidder, you receive the property in “as is” condition, which may include someone still living in the property. There might also be other liens against the property.
Usually what is owed to the bank is almost more than what the property is worth. Only a few foreclosure auctions end up with a successful sale. When the property isn’t sold the property “reverts” to the bank. It now becomes a REO, or “Real Estate Owned” property.
REO properties for sale
At this point the bank now owns the property and the mortgage loan no longer exists. The bank will now handle the eviction, if necessary, and they may even do some repairs. They will also negotiate with the IRS for removal of tax liens and pay off any homeowner’s association dues. As a purchaser of a REO property, the buyer will receive a title insurance policy and the opportunity to investigate the property.
A REO property might not always be a great bargain. Before making an offer, do your homework. If you are successful in purchasing the property, make sure that the price you pay is comparable to other homes in the neighborhood.
You also have to consider the costs of renovation and include the time to complete them. You do not need to get in a “bidding war” and pay over the market value. It’s an old myth that foreclosures are a bargain.
How the banks sell REO properties
Each lender/bank works a little differently, but they all have a few similar goals. They all want to get the best price and they have no interest in selling the property at a “cheap” price. In general, banks have an entire department set up to manage their REO inventory.
When you make an offer to purchase, the bank typically presents a counter offer. It may be one with a higher price than you expect. The banks do this to demonstrate to investors, auditors and shareholders that they attempted to get the highest price possible. You should now plan to counter the counter offer.
Your offer or counter offer will probably have to be approved and reviewed by several companies and individuals. Even after the offer is accepted, the bank may insert wording like “subject to corporate approval with 5 days.”
What condition is the property in?
The banks always want to sell the property in “as is” condition. Most of them will provide a Section 1 Pest Certification, but not unless you include it in your offer and negotiate. They will also allow you to get all the inspections you want, but at your expense. They may also 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 any unanticipated damages that the bank will not repair.
Even though you agreed to “as is”, always give the bank an opportunity to make repairs or give you credit after you’ve completed your inspections. Sometimes they will re-negotiate to save the transaction instead of putting the property back on the market. But don’t take it for granted.
Banks do not want to see a lot of proprietary disclosures; they are exempt from the Arizona Seller’s Transfer Disclosure Statement (TD-14). If real estate agents are involved, either representing you or the bank, those agents are required to provide you with their disclosure statements.
Making an offer
Before you make an offer, have your agent contact the listing agent and ask the following:
Is there a special “as is” form?
Are there any inspection reports?
What work has the bank agreed to?
How does your agent deliver the offer?
How long does it take the bank to accept the offer?
The offer is typically faxed to the bank. The listing agent will need your originals. There is no formal presentation. But keep in mind; nothing happens during the evenings and weekends, when the banks are closed.
Since there is no face to face presentation to the bank, you have to provide the listing agent a pre-approval letter and buyer biography. Make your offer easy to accept.
Hopefully these tips will help manage your expectations. Also remember that REO’s sell at pretty close to full market value and are not the deals we see on the late night infomercials.
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Some of the services offered by the Sunquest Properties Team,
Arizona Real Estate, Buying a home in Arizona, Selling a home in Arizona, Arizona REO, Arizona Foreclosure Help, Arizona Area Information, Arizona School Info, Arizona Refinance Quotes, Arizona Mortgage, Commercial Loans and Financing.
If you see any real estate service that is not covered please Contact us. Our broker has so many years of experience that he should be able to help you out.