Bank Owned Properties

Bank Owned Properties

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The opportunity to buy a bank owned home is one that many buyers often consider due to the fact that there is a prevailing belief that you can buy them for 50 cents on the dollar or less. While as a general rule many bank owned properties do represent a good Real Estate value, you are more likely to be able to purchase one for around 5-20% less than the going rate for a similar comparable property.

Buying a foreclosed home, is not for the timid at heart and there are many things that buyers need to be aware of going into a REO transaction.

One of the first things you should investigate when you become interested in an REO (Real Estate Owned) property is the present market value. This is something a skilled local buyer's agent can do to help you.

A Realtor® that knows the local inventory and recent sales data should be hired to help you with the transaction. While a banks goal is to get rid of their inventory as fast as they can, don't expect them to consider silly low ball offers especially when the home is first listed for sale. In many cases the price has already been set aggressively to begin with and more likely than not you will be notified of multiple offers. Like every other seller, the banks goal is to maximize the price they receive for a property.

What most people fail to understand is that banks have to demonstrate to shareholders, investors and auditors that they attempted to get the highest price possible.

It is not uncommon for a bank to reduce the price of a home in their inventory after it has been on the market for a while. A bank after all is not in the business of holding Real Estate. However, don’t make the assumption that banks are desperate sellers and will do anything to clear out their properties. This is rarely the case.

In order for a bank to consider accepting your offer you are going to want to make sure you have been pre-approved by a lender. Most banks will not even consider an offer without proper financial documentation. If you are making a cash offer with no financing contingency be prepared to show the bank proof that you have the funds in an account somewhere.

Often times with a bank owned property patience is a virtue. In some cases the bank may take days to respond to your offer. Also remember that on weekends banks do not conduct business so you are losing a few days in the week. The process can be even longer if you find yourself competing with multiple offers on the property.

When you buy a bank owned property be prepared to buy it "AS IS".

Most banks will not make repairs to a property unless it would affect the buyers’ ability to finance the property. Some of the things that more than likely a bank would be willing to remedy could include:

  • Termite or other insect problems
  • Mold issues
  • Plumbing or heating system issues
  • Electrical issues especially if it involves a safety hazard
  • Septic systems - some states require a passing inspection in order to close
  • Structural issues

While these are things many banks would consider remedying, don't assume that it would happen in all circumstances. Every bank is different in how they operate and  make decisions. Do not expect a bank to make nit-picky repairs – it’s probably not going to happen. You may be able to get a credit for some repairs at closing but don’t expect it.

Most banks have their own contracts that they use. You will be expected to sign their standard form and in most cases you will not be able to make any changes to it!

In most circumstances you will be given the opportunity to conduct inspections even though the property is being sold "as is".

It is important that your Realtor makes sure that you have proper contingencies in place that cover your ability to inspect the property for such things as the structure, pests, mold, radon, water, and others.

You will want the right to terminate the contract if these do not meet local or national standards. Be aware that the bank is going to want these inspections to be done immediately.

Finally, banks will prefer that the closing will be sooner rather than later. You will not see the same flexibility that you could possibly get with some traditional home sellers. As a rule of thumb, most banks will want the closing to take place in 6 weeks or less.

From our experience, the banks have requirements and expectations throughout the offer process. You can call us anytime if you have more questions about bank owned properties.