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Buying a Bank Owned Home (REO)

The opportunity to buy a bank owned home is one that many buyers often consider due to that fact that a majority of the homes on the market for sale are bank owned or short sales. Since buying short sales often can often be a lengthy process with a low success closing rate, buying a bank owned home can be attractive to buyers since the process is a relatively quick one. In addition, in some markets, bank owned homes are often sold for less money than a traditional sale.

Buying a foreclosed home however, 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 1st things you should investigate when you become interested in an REO 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 the bank to consider silly low ball offers especially when the home is 1st listed for sale. In many cases the price has already been set aggressively to begin with. Like every other seller the banks goal is to maximize the price they receive for a property.

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.

Do not make the poor 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. Most banks will require this as well. Some banks may also ask you to get pre approved through their preferred lender as well.

Often times with a bank owned property patience is a virtue. In many cases the bank will take days to respond to your offer. Also remember that on weekends banks do not conduct business 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 be buying it "AS IS". Most banks will not make repairs to a property unless it would affect the buyers ability to finance the property. Don't assume that the bank will make repairs in all circumstances. Every bank is different in how they operate and make decisions. Do not expect a bank to make ticky tack repairs - it is not going to happen! You may be able to possibly get a credit for some repairs at closing but do not expect it.

There are very few disclosures given to the buyer. Banks are not required to complete all the disclosures that a traditional seller is required to give. And most of the time, the bank and real estate agent selling the house has little or no knowledge about the house's condition or previous repairs/problems. So, just realize that you will be given very little disclosure about the condition of the property, so it is up to you as the buyer to conduct as many inspections as needed to ensure that you discovery any potential issues with the property.

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! I have seen attorneys try and more often than not they are rebuffed.

The purchase and sale is a more detailed version of the terms and conditions found in the offer. With a bank owned home you will just sign the banks form and that will be considered the Purchase and sale.

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 you 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.

Are you purchasing as an "Owner Occupied" buyer or an "Investor"? Why does this matter? Because many banks recently have put guidelines in place that dictate timeframes of when offers will be reviewed. For example, many banks have a policy that only owner occupied offers will be reviewed during the first 2 weeks on the market. They did this to encourage owner occupancy and to give the owner occupied offers a chance when competing against investors with cash offers. So, if you are an investor, this can make purchasing a bank owned home very difficult especially if you are purchasing in an area with low inventory and competing with multiple offers.

Lastly, 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.

At Intero Real Estate we have many REO agent specialists who work the banks on a regular basis who will help to guide you through this process. Call us today at 925-516-9090.