8 things you should know before you write an offer

Once a property is fully foreclosed by a bank or lender and listed for sale, it is commonly referred to as a REO (Real Estate Owned) listing. Most bank owned properties are listed with local real estate agents. Good buys are available. They require research, preparation, patience & persistence. Buying a bank owned home isn’t easy and it’s not without risk. The list below should be useful if you decide to take advantage of today’s unique REO buying opportunities:

1) Choose a real estate agent who is familiar with REO practices to help you navigate the process, confirm property values and negotiate terms.

2) Get pre-approved by a qualified lender. Many banks won't even consider your offer unless you have written lender approval or proof of funds.

3) Buyer beware. Most bank owned homes are exempt from typical seller disclosures and are sold “as is.” Lenders will allow you to get all the inspections you want (at your expense) although often refusing to pay for repairs or upgrades. It never hurts to ask and an experienced agent can save you a bundle be recommending reputable inspectors and negotiating terms with the bank. If substantial work needs to be done, have a licensed contractor take a look before you write your offer or have your agent negotiate an inspection contingency.

4) Making an offer: Your agent should find out if there are any existing inspection reports on file, what work if any the bank will agree to and if there is a special purchase agreement form required by the bank. (Many have their own forms and will not respond to offers written on traditional forms.)

5) Pricing your offer: Most REO properties are priced to sell and will likely sell within 15% of the list price. Better properties may command a bidding war, selling for more than asking price. If you lowball your offer, don’t be surprised if the bank doesn’t respond at all.

6) Once you know what you want and can afford, be prepared to write several offers before you get one accepted. Asset management companies, a third party hired by lenders to liquidate foreclosed properties, can be overwhelmed and routinely take longer than expected to respond. Unlike traditional sellers, lenders do not review files or consider offers on weekends and holidays.

7) Financing: For qualified buyer and investors, exploring financing options with the REO lender may produce better than market interest rate, reduced down payment amount or other financially favorable outcome. (A prequalification letter from an outside lender is still required to get to the bargaining table)

8) The lender is in the driver’s seat. REO sales are void of emotion for the seller. They do not have to makes sense to anyone but the bank. They make their own rules. Together with your agent, if you understand this basic principle, you might just be a good candidate to buy a bank owned home.