Buying bank owned properties

There is a lot of interest in buying bank owned properties these days. A lot of information, some good and some bad, is floating around about the subject. 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 are no secrets, and to make money does require effort.

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 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 with cash in hand (recent Auction results below)  And on top of all that, you’ll receive the property 100% “as is”.  That could include existing liens and even current occupants that need to be evicted.  A REO, by contrast, is a much “cleaner” and attractive transaction.    The bank now owns it. The bank will see to the removal of tax liens, evict occupants (not always) and generally prepare for the issuance of a title insurance policy to the buyer at closing. Assuring you the Buyer that you have clena clear title to your Home.  Do be aware that REO’s may be exempt from normal disclosure requirements.  In California, for example, banks are exempt from giving a Transfer Disclosure Statement, 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 to make money off of it.  While it’s true that the bank is typically anxious to sell it quickly, they are also strongly motivated to get as much as they can for it.  When considering the value of a 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.  The bargains with money making potential exist, and many people do very well buying foreclosures.  But there are also many REO’s that are not good buys and not likely to turn a profit. 

Ready to make an offer?

Most banks have a REO department or use a third party comapny to assist in the dispostion of Bank-Owned real estate.  Typically the REO department will use a local Broker to help market and sell their proeprties. Many REO Brokers do not work with Buyers and often times will not have much information on the property. Since banks are exempt from many standard disclosures the property will be “as is”, so you’ll want to be sure to have an inspection contingency in your offer so that you may inspect the property thuroughly. You must be Pre-Approved and provide a letter from your Loan Officer stating that you are qualified.  After you’ve made your offer, you can expect the bank to make a counter offer.  Then it will be up to you to decide whether to accept their counter, or offer 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.

I've have had many recent dealings with local Brokers specializing in REO's here in Los Angeles. They typically have little or no service, knowledge of the property is minimal and overall they just don't care. Try calling a few you'll see  . . .

 Since the Bank is exempt from many of the mandatory real estate Disclosures these REO Brokers don't take much interest (I've had recent dealings where the listing Agent/Broker had never seen the property). The bank often times discounts the commision to these Brokers in turn the Broker specializing in REO must focus primarily on volume. The bank dictates the Price, and before listing the property has obtained two-three other Brokers Opion of value and conducted a formal apprial on the proeprty. It is common to walk into a foreclosed proeprty on the market and have trash left from previous owners making it hard to ov However, there are some Great deals that can be made from purchasing Foreclosed property. Remember you are typically purchasing below market value based on current condition. So by taking advantage of these REO properties you could start building your own Home equity.