6 Basic Tips for Buying a Bank Owned Home
Currently many homes for sale are owned by banks. These properties are also known as real estate owned or REO and they have gone through the foreclosure process. Some of them are in very good condition and can be good deals. However, those who try to buy these homes will find that it is not as easy as it looks. Here are some quick tips for those interested in buying a bank owned property.
Do your own research.
This step is paramount for anything you want to buy. You should find out if the house is right for your needs and also any history on the property. You can often find out how much money the bank was owed on the home through public records as well as the current market value of the home through comparable sales. Additionally, sometimes you can find out which bank owns a particular property and contact an asset manager directly about a specific property. Find out everything you can about a property you are interested in before taking the plunge.
Have as much cash as possible.
In my earlier article discussing buying a home with cash, I wrote that having cash gives you the power to negotiate a better deal. This is certainly the case in bank owned homes. Many bank owned homes are snatched up by investors who are paying in cash and they are often not the highest bidder in multiple offer situations. If you have the cash, then the more power you have. Banks want to close deals as soon as possible so they recover some of their capital, and those with full cash offers are more likely to score the deal. If you do not have 100% of the cost, then a good sized down payment is also good.
Contact the listing agent directly.
A couple I know made offers on many REO properties with their own agent and had no luck because their agent was not experienced in REO listings. They basically ran around for several months without getting any results. I suggested that they make an offer with the listing agents directly and they were successful in buying a REO property they wanted fairly quickly. The issue here is that California allows dual agency and the listing agencies can take commissions on both sides of the deal. In the Redfin forums, many Californian buyers say that making an offer with the listing agent directly is the only way to make sure that the offer makes it to the bank. Additionally, banks work with a specific group of agents they trust so if you establish a relationship with these REO listing agents, it is likely that you will be offered new listings when they come on the market.
Make reasonable offers and be patient.
There is no point in getting into a bidding war and offering too much for a property. If you have a good financial profile then it is possible that the bank will still accept your offer even if it is lower than the highest bid. If the person who submitted the highest bid could not secure financing then it is possible that the property will go back to market down the road. This happens quite often and sometimes you can get an even better deal by being patient. You do need to make a reasonable offer by researching comparable sales. An extreme lowball offer on a REO listing is unlikely to be accepted since they are usually already priced below market.
Make an offer as soon as possible.
Currently REO listings are selling very quickly so you need to act fast. If you are interested in a particular property, set up a viewing and decide on making an offer soon after the viewing. Supposedly many investors are making offers without even seeing the properties right now, but I think it is prudent to at least take one look at what you are buying. You should at least have an idea of how much work you need to put into the house.
Get ready for a quick closing.
After you have an accepted offer there will be escrow. Banks usually want the deal to be done quickly and some of them try to shorten the escrow period to 21 days and also shorten contingency periods. Make sure that you get the time you need, but have your ducks in order so that you can complete everything on time. Usually REOs are sold "AS-IS," which means that the banks probably will not cover any repairs. But it is possible to negotiate for the bank to cover some closing fees.
It is definitely possible to get a good deal on a bank owned home in the current market, but you would need to put in a lot of time and work. More often than not you will be competing with deep pockets, so it pays to have your finances in order. Always remember to never over extend yourself, and do not get discouraged if your offers are rejected.
What do you think? Have you purchased a bank owned home recently? What is your best tip for a successful transaction?