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Foreclosures or Bank Ownes Homes - Top 10 Things Buyers Need to Know

By
Real Estate Agent with The Mode Real Estate Group DRE # 00935148

Having closed a high percentage of bank owned homes or REO's (Real Estate Owned) Bank owned homes - Repos for saleover the past few years, I thought I would write this post to educate you, the buyer, about what you need to know when you are thinking of buying a bank owned property.  If you are out in our market currently looking at either bank owned homes or short sales you know the market is very competitive, so educating yourself on the process and what to expect is very important.

Here are my Top 10 Tips for buying Bank Owned Homes:

1.  Make sure you know the market in the area...before your agent writes an offer on a bank owned home make sure they complete a CMA - comparative market analysis - on the home.  Many banks have been under pricing their inventory, just to attract more buyers and drive the prices up.  However, there are others out there that have overpriced their listings for the current market.  With the market being so competitive currently you want to make sure you know what the home is worth in its current condition - review the market analysis thoroughly with your agent. 

2.  Make sure your agent checks availability and multiple offers.  You may need to decide up front whether you want to complete with other offers for the property or not.  If there are multiple offers, have your agent ask how many; this will help you to determine what you are competing with.  There are times we have received 10-15 offers at one time on a bank owned home, but other times we have only received 2.  This can be very important to know in your negotiations.

3.  Also make sure you respond right away to the seller's highest and best offer.  Talk to your agent up front about what you will do if multiple offers are received and the bank counters all offers with highest and best.  You will usually have 24 hours to respond to the listing agent with your best offer if this occurs, so it is important to think about how you might be able to sweeten your offer if you are presented with highest and best from the bank.

4.  Make sure your earnest money deposit is at least 1% of the offer price.  If the offer price is $100,000 or less make sure the earnest money deposit is at least $1,000.  Banks do take into account the amount of the earnest money deposit.  I try to make sure my buyer's deposits are higher than the standard...so if a $1,500 earnest money is what would be expected, I will ask my buyers to write their deposit for $2,500.  This helps their offer stand out.

5.  Make sure you are preapproved for your financing.  All REO banks require that the buyer be preapproved - not prequalified - and make sure that the preapproval is acceptable to the seller and is up to date. Submitting an offer with an old preapproval or one not signed by the new lender will definately weaken your possibilities of getting your offer accepted.  Also providing the seller with proof of funds for the down payment and closing costs will improve your chances with some banks.

6.  Only ask for reasonable and necessary seller concessions and closing costs.  Remember, it is all about NET to the bank.  If you are asking for a credit for closing costs - 3% of sales price for recurring and non recurring closing costs is the most frequent - then remember you may have to increase your price above the list price to cover these costs.  A large majority of banks will not accept an offer below list price for the first 2 - 3 weeks a home is on the market; this means on a $100,000 sales price if you are asking for a 3% credit for closing costs, the bank views this as a $97,000 offer, not a $100,000 offer.   Also it is important to remember that most banks will only pay certain closing costs - generally in Sacramento - 1/2 escrow fee, owner's title insurance, transfer tax, and natural hazards report.

7.  REO's or Bank owned homes are sold "As Is".  Make sure to take a good look when you are viewing the property to get a good general idea of repairs.  Of course, you will have your inspection period to complete a home inspection, but remember if you are competing with other offers and you ask for repairs in the offer, your offer will most likely not be accepted.  Also important to consider, the seller has not occupied the home, nor have they ever seen it; they are probably in another state and so don't know the neighborhood or area and will not be completing the normal disclosures that a home seller is required to complete.  This makes it even more important for you as the buyer to complete your due dilingence on a bank owned home.

8.  Be reasonable when asking for time frames for your contingencies.  Most banks will allow 10 days for inspection contingencies to be removed and 17 days for loan contingencies to be removed. 

9.  It is always important on any transaction for the buyer to get a professional home inspection.  Because bank owned homes are sold AS IS, I always recommend my buyers not only have a home inspection done, but also a termite inspection and a roof inspection.  It is important for you to understand exactly what repairs you are going to need to make after you move in.  Also make sure that you complete your inspections within the time frames in the contract.

10.  The bank or seller will be providing you with a bank addendum once your offer is selected.  Make sure to read it thoroughly.  If you have questions on it, ask your agent.  These addendums will range from 1 page to 16 pages!  Also make sure you pay attention to the time frames in the addendum.  Most contingencies with bank owned homes are removed passively, so you do not have to do anything in order to remove the contingency - the time just has to pass.  If you have 10 days on your home inspection contingency, for instance, on the 11th day this contingency is removed without you doing a thing.  You need to pay attention and adhere to these time frames in your contract.  You don't want to give up your right to cancel the transaction because of the inspections just because you didn't pay attention to the time frames.

Bank owned homes represent a good opportunity to get a good value for your money.  At the same time, with our inventory currently being low in the Sacramento area, bank owned listings are very competitive.  As a buyer you need to become educated on this process also and work with an agent that is experienced with REO's.  If your offer is not complete and presented properly to the listing agent, it may never make it to the bank.  Set your expectations realistically!  Become informed and prepared!

Here are a few other blogs on the subject of REO's which you may want to take a look at:

Buyers-help-me-help-you-get-your-offer-accepted

Buying Bank Owned Properties - Disadvantages of REO's

Buying Bank Owned Homes!

The other market currently in the Elk Grove/Sacramento area that is hot right now is Short Sales...For more information on short sales, make sure to read Short Sales - Top 10 Things Buyers Need to Know.

 

Posted by

Lori Mode

Lori Mode, Keller Williams Realty - Elk Grove

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Lori Mode and Bruce Durham, Elk Grove agents

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About the author: The above Real Estate information was provided by Lori Mode.  Lori can be reached via email at Lori@ModeREGroup.com or by phone at 916-405-5737. Lori has helped people move in and out of Elk Grove and surrounding Sacramento areas for the last 37 years.

Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!

Comments (4)

Aaron Poling
Long & Foster - Martinsburg, WV
Working to get YOU the BEST Deal!

This is a great list. Thanks

Mar 21, 2010 09:26 AM
David Saks
Memphis, TN
Broker / Industry Analyst

Contingencies can be so sneaky. How about a contingency dependent upon a soil test ?

Mar 21, 2010 09:35 AM
Lori Mode
The Mode Real Estate Group - Elk Grove, CA
Real Estate Made Simple

Aaron - thanks.  I actually wrote this today because I am speaking next weekend to a group of about 200 investors in Sacramento and needed to collect my thoughts!

David - wouldn't a soil test just fall under the inspection contingencies?  I would think so.

Mar 21, 2010 09:49 AM
Paul Gapski
Berkshire Hathaway / Prudential Ca Realty - El Cajon, CA
619-504-8999,#1 Resource SD Relo

buyers always love top ten lists, helps them a lot.

Dec 18, 2011 03:12 AM