Purchasing

Buying Bank Owned Properties

An REO (Real Estate Owned) is a property that goes back to the mortgage company after an unsuccessful foreclosure auction.

You see, most foreclosure auctions do not even result in bids. After all, if there was enough equity in the property to satisfy the loan, the owner would have probably sold the property and paid off the bank. That is why the property ends up at a foreclosure or trustee sale.

Lots of savvy home buyers want to investment smart and buy REO Properties, as many of them are often under-priced. When banks price REOs under the comparable sales, multiple offers are often the response. This means you could be up against stiff competition for that bank-owned home.

It's not unusual for some REO homes to receive 15 or 20 offers. Sometimes the bank will throw out all but two offers and then ask the selected buyers to resubmit what is called "Highest and Best" offer. Sometimes the bank simply accepts the best offer at inception.

Each bank/lender works a little differently, but they all have similar goals. They want to get the best price possible and have no interest in "dumping" real estate cheaply.

Generally, banks have an entire department set up to manage their REO inventory. If you're wondering how you can make your offer shine above all the rest and be the winning offer, here are a few tips to help you select the right price and terms:

1) Get the Property History

Your agent from Save On Properties will find out the bank's purchase price on the Trustee's Deed. Generally, it is noted on the document itself, which we get from the tax rolls or our title company. Then we compare this price to the price the bank is asking for the REO.

We look at the amount of loans that were once secured to the property. Somewhere between the original mortgage balance(s) and the foreclosure sale price is the amount the bank will accept, if the home is under-priced.

2) Determine Comparable Sales

In many cases, the list price has little bearing on the value of the home. The market value carries the most weight. If you are up against competing offers, other buyers will probably offer more than list price. Here are some steps taken to determine the true value of the property:

We evaluate the last three months of comparable sales for it's neighborhood to determine how much this REO is worth. Homes that most closely match the REO regarding square footage, number of bedrooms, baths, amenities and condition are used as much as possible.
Pending sales are then analyzed. We will contact the listing agents of those pending sales to try to find out the accepted offer price. Some will share that information and some will not.
Active listings are then closely looked at. These are most likely the listings other buyers will use to formulate a price because they are the only homes those buyers can actually tour.
We then pull the history of the listings to determine the list-price to sales-price ratio. If most of those listings are selling for, say, 5% over list price, then we may need to offer 6% over list price, and vice versa.

3) Ask About Number of Offers

If there are no offers on the REO home, you can probably offer less than list price and get your offer accepted. However, if there are more than two offers, you will most likely need to offer above the asking price.

If there are 20 offers, bear in mind that some of those offers might be all cash. Banks like all cash offers. If you are obtaining financing, then you may need to increase the price on your offer to be considered.

4) Getting Pre-Qualified

It is important to have you mortgage pre-qualification letter in hand. Save On Funding Mortgage Corporation which is our mortgage division will analyze your financial information and determine your loan amount qualification. This letter will be submitted with your offer to the bank, and guides you on the maximum price you can afford to pay for a property.

5) Making an Offer

Before making an offer, we will find out the following information about the property:

Are there any inspection reports?
What work has the bank agreed to?
Is there a special "as is" form?
How long does it take the bank to accept an offer?
How does your agent deliver the offer?

Once submitted, your offer or counter-offer will probably have to be reviewed and approved by several individuals and companies, which we have direct relationships with. Even once an offer is accepted, the bank may insert wording like "...subject to corporate approval with 5 days." Our extensive relationships will allow your offer to shine and help you secure the property.

6) Don't Ask for Repairs / Inspections

Sometimes banks will pay for repairs, but typically will not agree to do so at the offer stage. If there are problems found during a home inspections, renegotiate after your offer has been accepted.

7) Shorten the Inspection Period

If other buyers ask for 10 days, for example, to conduct inspections, and you ask for 5-8, you will be deemed the more serious buyer.

8) Offer to Split Fees

Some banks will not pay transfer fees, for example. If the buyer offers to split those fees, the bank will feel more amenable to accepting the offer. Same thing goes for escrow fees.

9) Let us Guide you Through the Process After Acceptance

Save On Properties has specialized in dealing with distressed assets. Your agent will educate & guide you through the process and help you secure the purchase of your property. Listen to your agent as they are Certified Distressed Property Experts. Time is of the essence when dealing with REO properties, so please provide whatever is required in a timely manner.

Hopefully these tips will manage your expectations. And please remember, not every agent is knowledgeable in the processes of getting REO offers accepted. Make sure you have a Certified Distressed Save On Properties agent representing you.

OUR SERVICES ARE ALWAYS FREE TO BUYERS!!