Buying REO/Bank-Owned Homes

What to be aware of when browsing Bank-Owned Homes

REO/Bank-Owned properties are often listed at or slightly below market value to induce offers in a short marketing period. Unlike most standard sale transactions that allow some room for negotiation, (typically listing 3-5% above what a seller will consider), most bank-owned real estate is priced to sell at or above the listing price. As part of a bank’s loss mitigation protocol, they will ask for several opinions of a property’s value from one or more real estate appraisers and local real estate agents. Using this technique of gathering objective opinions from multiple third parties, the bank will generally end up listing the property at or just below market value. Of course there are exceptions, but if you have tried to make an offer on a bank-owned property recently, you may have found yourself in a bidding war that drove your initial offer way up.

Writing an Offer on a Bank-Owned Home

Submitting an offer on a bank-owned home requires some critical thinking and a good amount of preparation. Firstly, these homes are priced to sell fast. When a bank-owned property you may be interested in enters the market, you must tour it immediately and write the offer ASAP. Most banks do require a minimum exposure period of 7-10 days on the MLS to collect and review offers, but in some instances the bank will accept an offer on day 1. Here’s what you need to know to be prepared:

• Tour the home ASAP – average marketing times for REO’s are less than 30 days
• Read the Market to develop your offering price – Have your agent research and share recent comparable sales and listings with you - don’t just use the listing price as a point of reference. REO’s are often marketed below what they are worth, and conversely, sometimes they are listed way too high.
• Prepare your paperwork - The banks don’t mess around, they want ALL of the following information prepared and submitted at the same time:

   • Fully Executed Residential Purchase Agreement with most state required disclosures

   • Loan Pre-Approval Letter dated within the past 30-90 days from a mainstream lending institution

   • Credit Scores from a tri-bureau report (Equifax, Experian & Transunion)

   • Proof of Funds – evidence of checking, savings or other account balances verifying the earnest money deposit and down-payment

• Don’t ask for Repairs or Concessions – most REO’s are sold “as-is” and the bank will NOT MAKE REPAIRS. In most cases, the bank will not make concessions for closing costs either. It is best to write your offer with the condition of the property in mind, as the bank is far more likely to take an offer with “as-is” conditions than one that requires the bank to multi-task and send out a contractor.

Multiple-Offers & Counter Offers

If an REO/Bank-Owned home has been priced and marketed effectively, it will generally receive multiple offers within days of its listing on the MLS. Don’t be surprised if you don’t hear from the bank’s listing agent for several days, as they may take their time reviewing offers and presenting them to the bank’s representative. If the bank has received several offers at a similar price-point, they’ll generally counter every buyer, and make a request for their “highest and best” offer. The “highest and best” is the bank’s last chance to drive the sale price up, and your last chance to modify the terms of your offer to beat out the competition. Unfortunately, you never really know what you are up against, so you have to use your own best judgment about what you feel the home is worth to you. Sometimes an increased security deposit, a shorter excrow period, or the removal of loan and appraisal contingencies is enough to beat out another buyer without raising your price.