Buying a Bank Owned Property

Buying a foreclosed property is different than buying a normal residential property. It is important to work with an agent that has experience helping buyers purchase REO properties. Each bank has slightly different requirements when it comes to submitting offers. Accuracy and speed are critical!

• Get Pre-approved ASAP. If you plan to finance the home, you need to have a pre-approval letter prior to viewing the property. Once you find a property, you must be able to ACT FAST.

  This letter will also be submitted with your initial offer to the bank. Your lender needs to be aware that you plan to purchase a Foreclosed Property. There are certain types of financing that have restrictions which will not allow you to purchase an REO property. An experienced lender will be able to guide you to the right financing option. Some properties have special financing incentives like Fannie Mae HomePath or GMAC.

• "Deal" vs. "Steal". There are good deals when it comes to buying REO properties, but we caution you not to expect a 'Steal'. The average discount on an REO property is 22% of overall value compared to traditional properties. The average REO property in the Indy Metro Area sells for 95% of list price.

  If a home is listed for $100,000, that means on average it will sell for $95,000.

  Banks know what they need to sell the home for and in many cases will not discount the home further, even if it has been on the market for months!

• Making an Offer. Once you find an REO property that you would like to make an offer on, it is very important that you have a 'clean' offer. A clean offer means that you are not asking the bank to pay for uncustomary items, and that your offer is not contingent upon the sale of another home. Banks want your offers to be clear, precise and to the point.

• Be prepared for a Multiple Offer situation. It is very common for one property to receive multiple offers. When this happens, the bank will most likely call for "Highest and Best" offers. This gives each buyer the chance to submit a new offer within a specified time period. It is important to keep in mind what you are really willing to pay for the property and what you think it will take for your offer to be accepted. Often times, the offers go above the list price – this, of course, depends upon the specific market area, list price, etc.

• Accepted Offer. Once you are through negotiations and your offer has been accepted, the bank will send over their contract addendums for the buyer to sign. NOTE: nothing can be changed on this form. The verbiage is set in stone and the addendum is the same for every single property. Returning these documents as soon as possible is imperative, as your offer is not 'fully' accepted until you and the seller sign the documents.

• Communication. In a regular residential real estate transaction there is a seller that the listing agent can communicate with. In the REO world, 99% of the communication is online. There is no, one person making a decision in regards to your offer. Many of the Asset Managers for our listings are working with HUNDREDS of foreclosed properties. We process everything online. Some banks respond to offers within an hour and others take days. Be prepared to work on their time frame and do not get discouraged!

• Inspections. Most banks will allow the buyer to complete an inspection on the property. As a buyer, you need to expect that there will be issues that arise during the inspection -from plumbing issues to electrical to roof. Remember most REO properties have been sitting vacant for a year or longer. Once you have received the inspection, you can ask the bank to make repairs – some may agree or stand firm that the home is being sold as-is. When it comes to inspection responses, you the buyer, need to keep your expectations low and consider your purchase price. Is it low enough to compensate for the repairs that need to be made?

• Closing. There are a few common things that will cause a closing to be delayed:

  • Incomplete paperwork
  • Lender delays
  • Deed Recording Delays
  • Title Work Issues

The Bonwell Tanner Group is experienced in closing REO transactions and we know how to work through all of the issues that can arise during an REO closing.