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Buying a Bank Owned Property ~ Instructions and Frequently asked Questions

Real Estate Agent with Security Pacific Real Estate



Buying a Bank Owned Property

Instructions and Frequently asked Questions


Buying a bank owned property is somewhat different than buying a retail listing.  Please familiarize yourself with the following information to assist in the process.


Pricing Structure:

•1.    Most lenders and/or asset companies negotiate through a system that allows an offer to be only slightly less than the list price. If a property doesn't sell after 30 days, Security Pacific Real Estate and the Listing agent submit a monthly report to request a price reduction. In theory, the property will be systematically reduced until sold. If an initial offer is rejected, patience on behalf of the buyer may get an approved deal after several weeks.

•2.    Low offers are usually countered near or at list price, even if the offer is all cash.

•3.    A low offer is considered a combination of: actual price offered as well as percentage of list price.  Please contact the Listing Agent to discuss terms prior to writing an offer, especially if the contract is below asking price.

•4.    In a multiple offer situation, the lender will likely send back a standard counter offer of "highest and best". This means that all parties are to resend their original offers and resubmit a new offer with their absolute highest offer. Lenders use this "highest and best" response to allow each buyer one last chance to win the property. Some buyers will change their offer, some will remain the same and some will withdraw during this process.

Offer Instructions:

•1.    Please send all offers to the Listing Agent via their email or fax to 925.943.7409

•2.    Please use the standard CAR form to submit all offers.

•3.    Seller's name should remain blank.

•4.    Include a prequalification letter from the buyer's lender or verification of funds if the offer is for all cash.  Verification can be a bank statement.

•5.    Contract should have an "AS IS" addendum attached or statement placed in the additional remarks section of the contract:   "Buyers is aware this is a Bank Owned (REO) property and sold in it's "AS IS" condition. "As is" language is very important as the Seller will not allow a request for repairs or credit buyer for damaged items.

•6.    The offer should allow at least 7 business days for expiration.

Although banks usually respond within 24 hours of submission, the whole process to ratify the contract may easily take up to 7 days. Furthermore, if the offer is much lower than list price, the lender has an extensive review process that can take extra time.

•7.    Include a copy of an earnest deposit check with the original offer. This amount should be at least 1% of the purchase price - though lenders prefer to see more. Please note that some lenders require a deposit be made with certified funds. Additionally some lenders require all cash offers to submit 10% of the purchase price as an earnest deposit. Again, please contact the listing agent to clarify terms before writing your offer.

•8.    Although we live in an area where the buyer selects the Title Company and pay the fees associated with Title and Escrow, REO transactions have Title directed by the Seller. These Title Companies are usually out of our area and sometimes have fees different than our local custom.

•9.    Closing escrow is not important to the lender. In fact, trying to close an REO transaction in less than 25 days can be problematic, as REO closing agents are very busy and several days may transpire before escrow is fully opened. Also, there is a per diem penalty of $100 to $150 per day to the buyer if an escrow is late to close. The best way to avoid this penalty is to allow at least 30 days for an escrow to close and ask for extension if needed before contract expires. Per Diem may not be waived if request for extension is not received in a timely fashion.

Acceptance of Offer:

•1.    All offers are submitted into a web-based system and will be negotiated verbally until full acceptance. Counter offers will be sent via email or will be printed from a web page or relayed by phone. There will not be formal or written counter offers.

•2.    Once the buyer and seller agree to terms, the seller will issue a secondary contract addendum that restates the terms of the CAR contract and any changes made through counter offers. This addendum is a national contract and may have language different from local custom. The buyer must sign this addendum within 24 hours and cannot alter any terms of the contract. It is important that the buyer initial all pages so that the lender knows every item has been read and acknowledged.

•3.      Once the buyer signs this contract addendum, the listing agent will mark this property "Pending" in MLS. Although the seller may not have signed the contract at this point, the buyer should move forward with the transaction as if the agreement were fully ratified.

•4.    Please return your original contract, agency disclosure, counters and the contract addendum to the listing agent within 24 hours of full acceptance of contract. Personal delivery, courier or Fed Ex is preferred. Due to the degradation of faxing, the seller prefers original documents for review.

•5.    The buyer should order all inspections once the addendum is signed and submitted back to the seller. The preliminary title report may be delayed several days until escrow is fully opened, but there are tasks the buyer can complete while waiting for seller signed paperwork from the asset company. Sellers like to see progress in escrow and the listing agent will expect contingencies to be removed in a timely fashion.

Answers to Frequently Asked Questions:

•1.    The seller is very particular about how contract are submitted. The prequalification letter, deposit check, CAR forms and secondary addendums must be included and filled out completely.

•2.    The secondary addendum will require the buyer's agent to submit a Federal Tax ID number for escrow. This may be obtained from your broker. The contract is incomplete without the Tax ID and will not be processed by the seller.

•3.    The title orders are opened when the NOD (Notice of Default) is recorded and that policy number will follow the property through the REO transaction.

•4.    Seller may not have keys or devices to open mail boxes, garage doors, HOA common areas, etc. It is the buyer's responsibility to obtain any replacements at their own expense, if any.

•5.    Commissions are based on the net offer amount. The net offer amount is the purchase price less all seller paid credits.

•6.    Buyer's agent will not be paid a commission if they are the principal in the transaction or related to the principal.

•7.    Most lenders will not provide a home warranty for a REO property.

•8.      Any further questions, please contact the listing agent.

Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices


This is a very good summary, and I did not know a lot of this stuff. Boy, this came so timely, as I have to put together an offer on a REO, and I am meeting with the Buyer tomorrow (oops, already today)

Thank you very much. I feel much more confident now.

Mar 18, 2008 04:24 PM
Matt Yogerst
RE/MAX Realty 100 - Menomonee Falls, WI
Metro Milwaukee Real Estate
That was a very nice and detailed list of REO info.
Mar 18, 2008 04:26 PM
Chuck Carstensen
RE/MAX Results - Elk River, MN
Minnesota/Wisconsin Real Estate Expert
This is a great list.  Thanks for sharing.
Mar 18, 2008 04:46 PM
Gaby Diskin
Green Key Real Estate - El Cerrito, CA
Realtor, DRE Lic# 01228087, EcoBroker & Certified Green Building Pro

Hi Taryn,

Do you typically do inspections before you submitt the offer in an REO? Thanks for the info!


May 10, 2008 10:47 AM
Jamie Jameson
Antioch, CA

Hey Taryn,

This is great stuff ! Your post is very informative and we all need as much info as we can get.


Aug 23, 2008 11:42 AM