Thinking of purchasing an REO or Bank Owned property in California? For many, the lower sales price of most REO or bank-owed property has allowed them to purchase homes in previously unpurchasable California communities. If you are not already actively engaged in a purchase of short sale or REO property, in many parts of California, you may have missed the "boat." Homes in desirable locations (especially Silicon Valley and the Peninsula in Northern California) are now getting as many as five and six offers--above asking--on a bank-owned home. For those still interested in purchasing a bank owned or REO property, here's a quick guide regarding some of the more interesting aspects of purchasing homes from banks and lenders.
Buying a Home from a Lender Will Require Patience - Most bank owned properties are managed by "asset managers" who are hired by the lender to negotiate and sell the lender's inventory of homes. The asset manager will value the property and will be given a "range" within which the home may be sold without obtaining further instructions directly from the lender. However, within the asset management company, there will also be "tiers" of managers that are authorized to make decisions, and offers that must "work their way" through the different tiers of managers and then the lender will take time (sometimes weeks) to approve. While one can still get a real "bargain" in purchasing an REO property, a "low ball" offer that sits for weeks on the asset manager's desk will give someone else with a higher offer the opportunity to steal away the home of your dreams. Work with your Realtor to make a reasonable offer on a home.
The Buyer May be Forced to Use a Specific Lender - Certain REO or bank owned properties require prequalification or preapproval through a specific lending institution before the offer may be submitted to the asset manager for review and, hopefully, approval. Check with the listing agent to determine if there are any lending qualifications needed before submitting an offer.
The Seller Makes No Representation Regarding the Condition of the Property - The first thing you'll learn if you purchase an REO property is that the seller (the bank) makes no warranties or guarantees regarding the condition of the property. So be careful as you are buying a property with ALL of its blemishes and no way to get out of or rescind the sale if the home turns out to require $100,000 worth of repairs. Further, the bank will not know or even tell you about what may be wrong with the home. You can ask, but you'll only be told that the bank has no knowledge of the condition of the property.
The Buyer Will Pay for All Inspections - Even if the prevailing practices within your county or state require the seller (the bank) to pay for certain inspections, expect that you--as the buyer--will be required to pay for all inspections for the property. Although it can be tempting to want to save money by not getting inspections, do not do it! Pay for the inspections and be aware of the problems in the home BEFORE you close escrow--add about $1500 for the cost of most of the inspections you'll need.
As the Buyer, You May Be Required to Pay All (or Most) of the Closing Costs - Depending on the asset manager or lender, the buyer may be required to pay a large portion of the closing costs including items typically paid for by the seller--escrow fees, title fees, documentary fees, notary fees, recording fees, transfer taxes, reports, etc. Work with your Realtor to learn what fees will not be paid by the bank and the total of the costs that the buyer is expected to pay at close of escrow.
There are still incredible bargains out there for interested buyers in California. Before you engage in the purchase of an REO or bank owed property, remember to get all the facts about the home and the lender's expectations of what will be required of a qualifed buyer, and, of course, talk with a qualified Realtor who can help guide you through this much more complicated purchase. Good luck!!