Buying REO/Bank-Owned Homes
What to be aware of when browsing Bank-Owned Homes
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
- Prepare your paperwork - The banks don’t mess around, they
want ALL of the following information prepared and submitted at the same
Fully Executed Residential Purchase Agreement with most state
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.
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