Buying bank owned properties

There is a lot of interest in buying bank owned properties these days. An abundance of information, some good and some bad, is floating around about this topic. Often the information offered is for sale with the promise that you can make a lot of money with little effort once you know “the secret formula.” The fact is that there is no one secret formula; profiting from renovating homes does require effort & planning.

What’s an REO?
REO stands for “Real Estate Owned.” These are properties that have gone through foreclosure and are now owned by the bank or mortgage company. This is not the same as a property up for foreclosure auction. When buying a property during a foreclosure auction (sheriff’s sale) you must pay at least the loan balance plus any interest and other fees accumulated during the foreclosure process. You must also be prepared to pay a large cash deposit. You’ll receive the property 100% “as is.” That could include existing liens and even current occupants that need to be evicted. An REO, by contrast, is a much “cleaner” and attractive transaction. The REO property did not find a buyer during foreclosure auction. The bank now owns it. The bank will see to the removal of tax liens, evict occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing. Do be aware that REO’s are exempt from normal disclosure requirements. In Ohio, for example, banks are exempt from giving a Residential Property Disclosure Form, which is a document that normally requires sellers to tell you about any defects they are aware of.

Is it a bargain?
It’s commonly assumed that any REO must be a bargain and an opportunity for easy money. This simply isn’t true. You have to be very careful about buying a REO if your intent is purely profit driven. While it is true that the bank is typically anxious to sell property quickly, they are also strongly motivated to get as much as they can for it. When considering the value of an REO, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs or remodeling needed to prepare the house for resale. Bargain homes with money making potential do exist and many people do very well buying and renovating foreclosured properties. However, there are also may REO’s that are not good buys and not likely to turn a profit.

Ready to make an offer?
Most banks have an REO department or asset managers that we’ll work with in negotiating the purchase of an an REO property. Typically the REO department will use a listing agent to get their REO properties listed on the local MLS. Before making your offer, your Minister Realty agent will contact either the listing agent or REO department at the bank and find out as much as possible about the condition of the property and what their process is for receiving offers. Since banks almost always sell REO properties in “as is” condition you’ll want to be sure and include an inspection contingency in your offer. This inspection contingency will give you time to check for hidden damage and terminate the offer if necessary. You’ll make your offer more attractive if you can include documentation of your financibility, such as a pre-approval letter from a lender. Cash offers are the most appealing, yet not always possible for every Buyer. After you’ve made your offer, you can expect the bank to make a counter offer, unless their are multiple offers on the table. In a multiple offer situation it is recommended that you present your highest and best offer. If you are in receipt of a counter offer form the Seller it will be up to you to decide whether to accept the counter offer, or continue negotiating by offering a counter to the counter offer. Realize, you’ll be dealing with a process that probably involves multiple people at the bank and they don’t work evenings or weekends. It’s not unusual for the process of offers and counter offers to take days or even weeks.