Posted December 10 2010, 7:42 AM PST by Windermere Guest Author

What You Need To Know About Buying a Bank Owned Home

Posted in Uncategorized by Windermere Guest Author

SalePriceRecently, news about how to purchase a real-estate owned (REO/bank owned) home, foreclosure property or short sale is everywhere. Bank owned homes are sold directly from the lender after the foreclosure process is complete, and while you may save quite a bit of money by choosing to go for this type of home, it is not without trials and tribulations. The process of purchasing a home directly from a lender can be long and arduous, but could very well be worth it in the end.
If you have your sights on a particular home or are looking to find a deal on your first, working directly with the lender may be your only option. Purchasing a bank owned home is not for the faint of heart, here are some tips for negotiating the REO process:

1. Be prepared: The condition of bank owned properties is usually poor and hard to show. Past owners may have left angry and left the home in bad condition with foul smells, missing appliances, wires taken from breakers, gas fireplaces gone, even bathrooms without toilets and sinks.

2. Understand the costs: Maintenance or repairs may be necessary, since these homes have been vacant for an unknown period of time--sometimes months or years. Keep in mind, when they were occupied the owners could have been under a financial hardship, preventing them from doing regular seasonal care or repairs when needed. Remember as well that the bank is trying to sell the house immediately, so you will receive a financial break in the price rather than a willingness to negotiate on the maintenance and repair issues.

3. Accept the unknown: In traditional real estate transactions, homeowners fill out Form 17 regarding important information about the history of the house. A bank owned home is either exempt or marked with “I don’t know” throughout the document. Not having the accuracy of this 5 page disclosure form could leave you with a lot of unanswered questions on the history of the home.

4. Know what is non-negotiable: The pricing on the house may not get much lower. Some of these properties can be "a dream come true" if you get them at an amazing price, or they could be your worst nightmare. Do your due diligence researching any property, and conduct all necessary inspections to safeguard yourself. Some major repairs may be negotiable, but will likely not reduce the home price.

5. Make a clean offer: The higher the price you can offer, the better. Include your earnest money, keep contingencies to a minimum, and suggest a reasonable closing date. The simpler your offer is, the higher chance you have of the bank accepting your offer or countering in a reasonable time period.

6. Be patient: Consult with a professional who handles bank owned home purchases to help you negotiate the pathway to homeownership. The process of purchasing a bank owned, foreclosed or short-sale home is typically longer than a typical real estate sale.

What do you want to know about purchasing bank owned, foreclosure and short-sale properties?

Tonya Brobeck is a Broker at Windermere Lake Stevens. She has a total of 17 years combined residential real estate and worldwide resort sales & marketing experience.


10 Comments

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  • I have not experienced that "The condition of bank owned properties is usually poor and hard to show". Although there are many REO properties in poor condition, I see just as many REO properties that are in decent to excellent condition.

    Some are priced well, some are not. A poorly priced REO property is as much of a problem for that seller as any other poorly priced property: price is the first 'bottom line' that gets buyers in the front door to see the property.

    Another issue in marketplaces all across the country is that many REO properties are consistently not being marketed very well, IMHO. One photo does not do any property justice, whether it is in top condition or horrible condition. "Broom clean" condition does not mean fall leaves all over the inside of a property in January.

    Posted January 18 2012, 2:59 AM by Leanne Finlay

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  • Mike...

    [...]What You Need To Know About Buying a Bank Owned Home | Windermere Real Estate Blog[...]...

    Posted January 04 2012, 4:33 AM by Mike

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  • Peter...

    [...]What You Need To Know About Buying a Bank Owned Home | Windermere Real Estate Blog[...]...

    Posted January 04 2012, 4:30 AM by Peter

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  • Here on Maui there are some great island REO properties coming available. Just last week when I ran a query of Single Family Residences there were at least 60 properties, and that was for the more centrally located populated areas of Maui. REO's are a great way to get a property in Paradise and well worth a look. If you are looking for a new home or just a great investment REO's may be well worth the upfront effort.

    Maria N. Isotov-Chang is a Realtor Salesperson with Windermere on Maui at the Northshore office in Paia. She has ten years experience in land entitlements also.

    Posted February 17 2011, 3:26 AM by Maria N. Isotov-Chang R(S)

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  • [...] factors that affect the purchase of your home. If you are looking at a short sale, a foreclosure or bank owned home, the process will take longer than a traditional home sale from the owner or developer of the [...]

    Posted February 09 2011, 8:03 AM by Preparing to buy (Home resolutions, part III) | Windermere Real Estate Blog

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  • Keep in mind that "banks" typically will not convey title with a statutory warranty deed like normal real estate transactions. They almost always use special warranty deeds commonly called bargain and sale deeds that carry virtually no title warranty. Any issues pertaining to the chain of title and/or how the "bank" acquired ownership are transferred to the next homeowner.

    This places the burden of any title issues on the new homeowner and their title insurance company. Even if the buyer of an REO has very good insurance, I have yet to see a policy that will pay for costs of improvements made to the property or move in/out expenses incurred if the integrity of title comes into question.

    These issues are just now unfolding in our industry.

    Kreg Kendall
    Managing Broker
    Windermere - Bellevue Commons

    Posted December 11 2010, 7:36 AM by Kreg Kendall

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  • Rob, I disagree. I understand that banks want to say "as-is" for many reasons and I understand that banks are not staffed to send contractors out to a house to make repairs. But that doesn't mean they won't negotiate cash compensation to the buyer on a house with inspection issues. Some banks will negotiate, some won't. You have to ask and negotiate to find out. So, I don't think we are doing our buyer clients any good favors if we just tell them out of instinct that because the bank said "as-is" you can't ask for anything. If that were the case, every seller in the country would write "as-is" in to the listing. That's just not going to happen.

    Chris Loeliger
    Managing Broker, Windermere

    Posted December 10 2010, 8:37 AM by Chris Loeliger

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  • Great insights Rob!
    Getting a home inspection contingency is a good idea.

    Posted December 10 2010, 8:28 AM by Tara Sharp

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  • One additional thought. Most banks will not make any changes to the home. They are sold in "As-Is" condition. This does not mean you can't do an inspection and reserve the right to withdraw the offer is you find things that are not to your liking. Without a form 17, this is a great way to protect yourself from hidden damage in a home. I have yet to have a bank balk at offers with an inspection contingency.

    Posted December 10 2010, 8:25 AM by Rob Graham

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  • Tonya- these are great tips.

    Something for buyers to consider is that conditions may vary considerably from market to market. For example, in Leavenworth where I work, we have very few foreclosures compared to other towns. It looks like we will only have a total of 12 bank owned properties sell in 2010 or about 10% of the total home sales.

    The other thing to consider is that not all segments of the market offer bank owned properties. In my market, consumers are hungry for bank owned properties on Lake Wenatchee or Icicle Creek. Foreclosures seem to stack up in some neighborhoods more than others and finding a dream home on the lake for a deep discount just isn't that realistic.

    Posted December 10 2010, 8:10 AM by Geordie Romer | Leavenworth WA

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