It should come as no surprise that a great percentage of our real estate market is short sales and bank owned properties (REO). Last week I wrote about some of the pitfalls and considerations of short sales; today, lets discuss those issues in terms of a Bank Owned Property. Of course one of the first advantages of a REO property, unlike a short sale, is you are now dealing directly with the Bank (Owner). Banks are not in the business of holding inventory, so you have a motivated Seller. Escrow is likely to close much quicker, and you may pick up some interesting financing opportunities from the Seller..
Here are 5 tips when dealing with Bank Owned REO Properties (of course there are many others to consider depending on your individual circumstances and goals):
- Be prepared to pre-qualify with the Bank’s lender. Most Banks won’t even look, or have an offer presented, unless you have spoken to their designated lender. You cannot be forced to use this lender as a requirement of the purchase, but your offer most likely will not be presented or considered.
- Be prepared to be in a multiple offer situation. REO lenders are motivated and want to get their property sold. With that said, they are coming on the market with aggressive asking prices designed to generate multiple offers from prospective buyers. While some Banks will deal with one buyer at a time, others will generate counters to multiple buyers. It’s best usually to go in with a clean, strong offer, particularly if the property is a bargain.
- Be prepared to spend some money on inspections. REO sales are exempt from the Transfer Disclosure Statement that Sellers would give to a Buyer. Having never lived in the home, they are not aware of prior problems or issues with the home and will not be able to disclose anything to you. You should hire appropriate professional inspectors to determine the present condition of the property. Start with a general home inspection and further investigate any “red flags” noted on these reports or from your REALTORS® visual inspection.
- Be aware that most Banks counter back with addendums and supplements to the purchase agreement (RPA). I tell my Clients that if you want a particular property, you are going to have to sign them. This is usually not in your best interest since they take a very balanced purchase agreement and change it. These addendums and supplements can affect the RPA in many ways including changing the contract from active removal to passive. They also may be in violation of California State Law, and may make a mess of your inspection and cancellation rights. Speak to your REALTOR® and review these documents so you can understand them to the best of your abilities, but a team of 30 lawyers would probably have at least that many opinions. Go into this with your eyes open and remember you are dealing with a very non-emotional Seller.
- Since you are going into a purchase not knowing the history, I would suggest a home warranty with upgrades covering included appliances. Usually you can negociate this to be paid by the Seller and it will help you with any repairs that may be required once you close escrow.
In summary, the above tips are a good benchmark to consider in your purchase of a REO property. Some excellent opportunities exist in our market today, and with a little understanding of REOs you too can shout…BINGO!
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I wish I could say that things are better with the Bank Owned sales, but more often than not I am finding a great deal of frustration dealing with some REO specialists. No return of phone calls, dozens of fiery hoops to jump through, and dozens of offers. I think things will start to correct once more inventory starts back on the market soon.
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