How to Buy a Bank Owned Home
Bank owned homes or Real Estate Owned homes (REO) are homes that have been foreclosed on by the lenders. These are homes that have not sold at the foreclosure autcion, and are now owned by the bank.
As mentioned earlier bank owned homes (REO) are homes that have not sold at a foreclosure auction. When a house is auctioned during foreclosure, the minimum bid price for the house usually includes the total loan payoff plus any accrued interest or fees. In today’s market where home prices are dwindling, the foreclosure price may be more than the market price, or may not have enough equity to make a good deal to the buyer or investor. In such a case, where the home is not sold in a foreclosures, it ends up being a bank owned home ( REO ).
After an unsuccessful foreclosure, the bank owned home ( REO ) is usually transferred to an asset servicing company that services the homes for lenders by managing the eviction process, get the home cleaned up, transferring utilities under their name. These asset management companies order what’s called a BPO or a broker price opinion to assess the fair market value of the bank owned home, We will talk about BPO’s in a little bit.
Unlike popular myth, most lenders look to get the highest possible price from the sale of bank owned homes, Once a home is actually owned by the bank, the bank will not want to sell the home for half of its actual value. Banks or servicing companies most often use realtors to sell bank owned homes. The sale price on the home maybe somewhere around the broker price opinion price.
Most lenders prefer to sell bank owned homes in as-is condition. Therefore, it’s important that you have done all your due dilligance on the property before signing the dotted line.
An emerging trend in todays market is the portfolio sale. Due to the high number of unsuccessful foreclosures and bank owned homes, the lenders may offer a portfolio of several homes at a discount. The portfolio sells for millions of dollars, however investors may be able to buy at .50 to 60 cents to the dollar.
When negotiating the price on a bank owned home, keep the following in mind; the better qualified you are to buy the house, the more negotiating power you have. I recommend using a realtor to negotiate on your behalf. The realtor may be able to look up comps in the market, and the procuring cost to the bank. This will allow you to offer an appropriate price to for the bank owned home.
Do get pre-approved for the loan before you make an offer the bank. If you are an all cash buyer, play the fast closing card. Offer to close in a week or 2. This may help you get a better discount on the bank owned home.
Since most of the bank owned homes for sale are as-is sales, please ensure that you have read all the reports, and done your due dilligence.
Beware: there are a lot of websites that will sell you the “how to books” to buy bank owned homes for pennies on the dollar. They may offer to sell you lists of REO companies or promise you the moon. My personal opinion: STAY AWAY FROM THEM.
The quickest, surest and safest (for your wallet) way to search for and buy bank owned homes, is by using the services of an experienced Realtor. most of the Realtors will have access to bank owned homes that are currently listed for sale.
Happy buying!
Simermeet Singh is a real estate broker serving the San Francisco Bay Area Communities. He may be contacted at 408-512-7164