Being a Realtor in South Florida, I receive numerous calls regarding bank-owned foreclosures (REO’s). However, I try hard to educate my buyers to realizing that these REO’s can be challenging. That doesn’t mean you can’t secure one. It just means you need to do your homework and be prepared for the competition.
Although Florida’s real estate contracts protect buyers, when purchasing an REO, the old latin adage caveat emptor (“buyer beware”) applies.
The banks’ asset managers follow a formula for selling a property no matter the location. They rarely if ever visit the property and really don’t care about your gripes with the conditions. They just want to sell it. You are buying the property “As Is” and it is the buyer’s responsibility to fully inspect and discover all the issues that may accompany the home.
If you are paying cash for a property, the condition of the property only matters to you. However, if you are financing a home, the condition is important not just to you, but also your ender.
I always tell buyers that the home must have four functional items – roof, electric, A/C, and plumbing. If those four things are not in working and livable order, move on to the next home. The only way to finance them is through an FHA 203K rehab loan, or through Fannie Mae’s Homestyle Renovation Loan, neither of which is easy to secure.
Cash is King!
During the past 6-month period, in Palm Beach, Broward, and Miami-Dade counties over 60% of all REO closed sales were cash transactions. If you are financing your property, be prepared to fight the cash buyers, both investors and primary homeowners.
Keep in mind that most offers that are made are NOT cash offers. In fact, a single listing can receive ten offers and only one may be cash. However, a cash buyer usually has the upper-hand simply because it’s quick and easy for the asset manager handling the transaction for the bank.
Don’t Low-Ball Your Offer…The Market Drives the Price
Generally, the bank’s asset manager will NOT accept any offer that is less than 10% below the list price, even if that is the true fair market value of the property. The list price must first be lowered to a range that matches the offers received. Low-balling your offer is just a waste of time for you, your agent, and the asset manager reviewing it.
Similarly, they may list the property lower than the fair market value to get as much attention and traffic to the property as possible. They expect the buyer and the agent to do their homework and come in with a fair offer. If it’s too good to be true, it usually is.
Know Your Market
I always separate the REOs from the regular sales on my customers search lists. I don’t want buyers getting the impression that all listings are the same. They are not.
Facing the reality of an REO purchase can help ease the frustrations that accompany the process. Having and agent that understand it and is not afraid to educate you is key to your success.
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