Buying a Home
Buying a Bank Owned Home
Buying a Bank Owned home is a lot different than buying one in a normal market. It takes planning, preparation, and patience to have a successful transaction. We are ready and willing to help guide you through the process to ensure a smooth ride for all parties involved. When dealing with our clients, keep in mind that responses can take up to 48 hours. Banks are much different than individual sellers for obvious reasons. The time and effort is worth it; however, to get a great home for a great deal.
REO vs. Foreclosure
What is a Foreclosure and why are some referred to as REO’s? An REO (Real Estate Owned) is a property that has been through an unsuccessful foreclosure auction and as a result has gone back to the mortgage company. When a Foreclosure auction begins, the mortgage company sets a minimum bid which includes the loan balance, any accrued interest, and attorney’s fees and other costs associated with the foreclosure process. Usually the amount owed to the mortgage company is more than the property is worth and as such results in an unsuccessful sale “reverting” the property back to the company to sell by other means.
REO Properties For Sale
Now that the bank owns the property, they will handle an eviction and if deemed necessary, they may do some repairs. They will negotiate for the removal of liens with the IRS, Utility, and Home Owners Associations. Purchasers of an REO property will receive a title insurance policy and be given the opportunity to investigate the property.
How REO’s are Sold
Each institution handles their selling process differently, but their goals are fairly similar. They all want to get the best possible price to cover the losses accrued from the foreclosure process. They have no interest in “dumping” real estate cheaply. Banks have entire departments set up to manage their REO inventory meaning there are no emotional ties to any particular property.
Making an Offer
Once you have found a home you are interested in you will want to make an offer to purchase. This is where your preparation will pay off. When presenting an offer, the Bank will have told the Listing Agent not to accept offers without the following:
- Prequalification Letter – A letter from a bank or financial institution that a buyer has the financial capacity to purchase the home
- Proof of Funds – A copy of a statement from a bank or financial institution showing that a buyer has funds available for a down payment, earnest money, or purchase of the property
- Copy of Earnest Money Check – A copy of the check or receipt of cash to show the bank that earnest money is ready to be deposited when called for
- A Completely Filled out State Real Estate Purchase Contract (REPC) including all initials and signatures
Be aware that you are dealing with an REO company not a regular home owner selling their home. Nothing happens on evening and weekends as banks are closed. Responses usually take up to 48 hours and there is no face-to-face presentation to the bank. Once you have made an offer at any stage, it will need to be reviewed and approved by several individuals and companies, usually taking upwards of 48 hours to get a response, so be patient and hang in there.
Once you offer has been reviewed, the bank will generally present a “counter-offer.” It may be a higher price than you would expect, but remember their goal in this transaction is to get the most possible for the home in order to cover the loss they accrued at foreclosure. The bank needs to demonstrate to investors, shareholders, and auditors that they at least attempted to get the highest price possible. You should plan to counter-offer.
Once an offer has been accepted, the Listing Agent will send you contracts to sign along with a checklist of everything that they will need back. Your offer should include an inspection contingency period that allows you to terminate the sale if inspections reveal unanticipated damages that the bank may or may not correct. This contingency generally starts once the bank has accepted an offer, but it varies from company to company.
Property Condition
Banks always want to sell a property in “as-is” condition meaning without repairs or improvements made or credits given so that a buyer can make them themselves. You will be allowed to get all the inspections you want (at your expense), but usually they will not agree to do any repairs. In some cases, the bank has already made repairs to have a better chance of selling the property for the highest price possible and may not be willing to do any more. Even though you are agreeing to “as-is” be sure to give the bank the opportunity to make repairs or give you a credit after you’ve completed your inspections. Sometimes they’ll re-negotiate to save the transaction instead of putting the property back on the market, but don’t take this for granted.
Any showings must be accompanied by a licensed Realtor at all times until the property has closed. Entering the property without is deemed as trespassing. Keep in mind when scheduling your inspections to inform the Listing Agent more than 72 hours in advance so they can make sure the property is ready including de-winterizations.
Recording
Once you and the bank have settled on terms and ready for closing, there are a couple of other things to be aware of. The banks will not allow you to begin making repairs, storing property, removing a sign and key box, rekeyed, or inhabiting a property by any means until the sale has recorded (meaning closed and funded). They will not make any exceptions to this. Once it has recorded; however, we recommend rekeying the property as soon as possible to prevent unauthorized entry.
Hopefully this has given you a helpful insight into buying bank owned homes and will help you prepare and manage your expectations. Remember that Bank Owned Homes sell at pretty close to market value and are not the fantastic deals you hear about or see presented on late night television.
Buying a Non-REO Property
Buying a home is a big step! Whether you’re buying your first home, your dream home, or your tenth investment property, yours will be a big investment. We know how important this is to you. And we have an army of experts to make sure we find the perfect property for your unique circumstances.
Finding the perfect property is just one way we can help you with your real estate purchase. As real estate agents, we have ongoing access to experts in every related field from lending to relocation. We won’t rest until we have taken you through every step of the buying process. It’s our gift and our guarantee to you.
Because this is our neighborhood also, we can provide you with detailed information about our communities, cities, and state. We have a clear understanding of the local market, and an excellent inventory of homes. We also have full access to our Multiple Listing Service (MLS) so you can shop online from the comfort of your own home. Make a list of the homes you want to see and we’ll tour them together.
The home buying process may seem complex, but we’ll make it easy for you. We will help you:
- identify your priorities
- understand the market
- research different communities
- apply for financing
- understand the seller’s responsibilities
- search for properties
- complete and present the Real Estate Purchase Contract (REPC)
- counteroffer until the deal is just right
- conduct a home inspection
As our client, you will have all the benefits offered by a professional realtor.