There are an increasing number of bank owned homes available in the real estate market. I am contacted almost daily on my website - http://www.brianrichardhomes.com/ or through my advertising by potential buyers interested in getting a “deal”. What is a deal to you? This is the first question that you need to ask yourself when purchasing a new home. A bank owned property may just be what your looking for but first you need to know exactly what the process is and what you may potentially be getting yourself into.
Do you want to know how to buy bank owned property?
Everyone has seen the late night infomercials about how easy it is to buy real estate from the bank and make a quick buck. The reality is that it is not as easy as they make it sound. There is definitely buying opportunities available but you need to understand how this process works. Learn everything you can so you are prepared.
REO vs. Foreclosure
REO (Real Estate Owned) is a home that the bank takes back from the owner that is not sold at auction. Typically, the bank will work with the home owner to help them cure the default so they can avoid the foreclosure because the bank does not like being in the real estate business. In other words, they do not want to have property on their books. The REO property is typically property that has a mortgage balance equal or greater then the value.
If you plan on attending a bank auction, you will also need to be prepared to not only pay the balance of the mortgage, but typically the bank will add on any other fees or costs that they have incurred up to that point. This could include accrued interest, attorney fees and other costs that have been part of the foreclosure process. The other problem with auctions is that the bank will want you to have cash in hand if you have a winning bid on a property. Banks will not typically give you time to line up financing and this can make it impossible for anyone other then a real estate investor to get in and purchase a home.
One more item that is a big concern: Be aware of what you buy. At an auction, you are not going to have the time needed to research any other liens that may be recorded against the property.
It is common to find most property being offered at an auction, actually have more owed against the home then it is actually worth. Few foreclosures actually end up as a successful sale. If the property does not sell, this is when it goes back to the bank and becomes a Bank Owned Property, REO (Real Estate Owned).
REO Real Estate for SaleIf you are dealing with REO’s, remember that the properties are now owed by the bank and free of any liens. The banks are still going to try and get the most money they can for the property but they are more willing to take a quick loss and move on.
At this point the bank may have to evict the tenant, do some repairs to the property and get it ready for sale. Other items the banks will handle may include removing IRS tax liens and paying off HOA dues. The biggest benefit of buying bank owned property is you will have the opportunity to get title insurance. Title insurance will ensure that you do not have any additional liens recorded against the property. Some of the issues buying property in distress are that you have other liens that have to be satisfied which can make it very difficult to get clear title insurance. Bank owned property will come with clear title.
Be aware: REO property may not be right for you. Do your research before making any offers. If you do make an offer and move forward on the purchase, make sure that you are paying a fair price compared to others in the area. Don’t get into a bidding war because the property appears to be a good deal. Many times, people chasing REO or auction property end up paying market value because they get into a biding war. Foreclosures are not always the bargain you may think they will be.
How do banks sell REO property?
Every bank is a little different when it comes to selling REO property but one thing remains the same. They all want the highest price possible and do not want to sell the property cheap. The other item that is similar among all banks is that they usually have a separate department set up to only handle REO property.
Typically, when you make an offer to a bank on an REO property, you can expect to receive a counter offer. Sometimes it will be much higher than expected, but banks do this to show investors that they are attempting to get top dollar for the property. If you really want to buy this home, expect that you will have to make a counter offer to the banks counter offer.
If the offer becomes accepted, you may experience a delay getting a final approval or because the offer may need to be approved by someone else at the bank. Typically, it can take an extra 4-5 days for your offer to get final approval.
What is the condition of the property?
Be prepared to buy the property as is, or make a strong offer to get your repairs made. Banks will always push to sell the property “As Is” to avoid coming out of pocket with additional money. Section 1 termite clearance is typically still covered by the bank but you will have to work hard to have additional items covered. Working with a solid REALTOR can help your negotiations.
The banks always want to sell the property in “as is” condition. Most of them will provide a Section 1 termite clearance but make sure you include this in your offer. In addition, make sure you get a good inspection of the property so you know exactly what you are buying. It is so important to have a good physical inspection of the property.
Most contracts call for a time period to back out of the transaction should you find problems with the home. Make sure you have enough time to back out of the transaction if you need to and do not jeopardize your deposit.
Even though the bank wants to sell the property “As Is”, make sure you try to get the bank to make the needed repairs or provide you with a credit at closing to complete the necessary work. If it really gets tough and you feel that you really want to back out of the deal because of the repairs, the bank may work with you instead of having to go out and find another buyer. This depends a lot on what the current market is doing in your area and how many other buyers the bank may or may not have.
Writing up an offer
Before the offer is made, make sure you contact the agent listing the property so you can ask some of the following questions. It is important that you ask the following:
Are you selling the property “As Is”?
Is the bank willing to do any repairs?
Have any inspections taken place for the property?
If so, can you provide a copy of these inspections?
Has the bank agreed to do any repairs to the home?
How will the offer be delivered to the bank?
How long should I expect the bank to respond to my offer?
The offer is typically sent to the bank. The listing agent will take the originals. At this point you must have a little patience. It can take a few days for you to get a response from the bank. Many Realtors work weekends, but banks do not typically have anyone around after 5pm or on the weekends so you will not get a very quick response.
Make sure you have a pre-approval letter or copy of a loan approval to go along with your offer. This will make the offer more attractive and help the bank make a decision. Make the offer clean and easy to read. Most agents will use a computer based program for generating all of the paperwork.
I hope these tips will help you deal with any banks you may try and buy a home from. Remember that the late night infomercials are not as easy as they appear to be. I would be happy to help you prepare and make an offer on any bank owned property. I have the experience to make it happen.
Brian Richard, GRI, EPRO, ABR
NSDCAR Director 2009 - Carlsbad
Chairman - Habitat for Humanity Carlsbad
Richard Realty Group
6986 El Camino Real Ste. H Carlsbad CA 92009
760 533 4244 Cell 760 603 8773 Fax
Brian@RichardRealtyGroup.com
http://www.brianrichardhomes.com/
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