Buying bank owned properties...
There is a lot of interest in buying bank owned properties these days. A lot of information, some good and some bad,
is floating around about the subject. Often the information offered is for sale, with the promise that you can make a
lot of money with little effort once you know “the secret formula”. The fact is that there are no secrets, and to make
money does require effort.
What’s an REO?
REO stands for “Real Estate Owned”. These are properties that have gone through foreclosure and are now owned
by the bank or mortgage company. This is not the same as a property up for foreclosure auction. When buying a
property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees
accumulated during the foreclosure process. You must also be prepared to pay with cash in hand. And on top of all
that, you’ll receive the property 100% “as is”. That could include existing liens and even current occupants that need
to be evicted. A REO, by contrast, is a much “cleaner” and attractive transaction. The REO property did not find a
buyer during foreclosure auction. The bank now owns it. The bank will see to the removal of tax liens, evict
occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing. Do be
aware that REO’s may be exempt from normal disclosure requirements. In California, for example, banks are
exempt from giving a Transfer Disclosure Statement, a document that normally requires sellers to tell you about any
defects they are aware of.
Is it a bargain?
It’s commonly assumed that any REO must be a bargain and an opportunity for easy money. This simply isn’t true.
You have to be very careful about buying a REO if your intent is to make money off of it. While it’s true that the bank
is typically anxious to sell it quickly, they are also strongly motivated to get as much as they can for it. When
considering the value of a REO, you need to look closely at comparable sales in the neighborhood and be sure to
take into account the time and cost of any repairs or remodeling needed to prepare the house for resale. The
bargains with money making potential exist, and many people do very well buying foreclosures. But there are also
many REO’s that are not good buys and not likely to turn a profit.
Ready to make an offer?
Most banks have a REO department that you’ll work with in buying a REO property from them. Typically the REO
department will use a listing agent to get their REO properties listed on the local MLS. Before making your offer, you’
ll want to contact either the listing agent or REO department at the bank and find out as much as you can about what
they know about the condition of the property and what their process is for receiving offers. Since banks almost
always sell REO properties “as is”, you’ll want to be sure and include an inspection contingency in your offer that
gives you time to check for hidden damage and terminate the offer if you find it. As with making any offer on real
estate, you’ll make your offer more attractive if you can include documentation of your ability to pay, such as a pre-
approval letter from a lender. After you’ve made your offer, you can expect the bank to make a counter offer. Then it
will be up to you to decide whether to accept their counter, or offer a counter to the counter offer. Realize, you’ll be
dealing with a process that probably involves multiple people at the bank, and they don’t work evenings or
weekends. It’s not unusual for the process of offers and counter offers to take days or even weeks.
There is a lot of interest in buying bank owned properties these days. A lot of information, some good and some bad,
is floating around about the subject. Often the information offered is for sale, with the promise that you can make a
lot of money with little effort once you know “the secret formula”. The fact is that there are no secrets, and to make
money does require effort.
What’s an REO?
REO stands for “Real Estate Owned”. These are properties that have gone through foreclosure and are now owned
by the bank or mortgage company. This is not the same as a property up for foreclosure auction. When buying a
property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees
accumulated during the foreclosure process. You must also be prepared to pay with cash in hand. And on top of all
that, you’ll receive the property 100% “as is”. That could include existing liens and even current occupants that need
to be evicted. A REO, by contrast, is a much “cleaner” and attractive transaction. The REO property did not find a
buyer during foreclosure auction. The bank now owns it. The bank will see to the removal of tax liens, evict
occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing. Do be
aware that REO’s may be exempt from normal disclosure requirements. In California, for example, banks are
exempt from giving a Transfer Disclosure Statement, a document that normally requires sellers to tell you about any
defects they are aware of.
Is it a bargain?
It’s commonly assumed that any REO must be a bargain and an opportunity for easy money. This simply isn’t true.
You have to be very careful about buying a REO if your intent is to make money off of it. While it’s true that the bank
is typically anxious to sell it quickly, they are also strongly motivated to get as much as they can for it. When
considering the value of a REO, you need to look closely at comparable sales in the neighborhood and be sure to
take into account the time and cost of any repairs or remodeling needed to prepare the house for resale. The
bargains with money making potential exist, and many people do very well buying foreclosures. But there are also
many REO’s that are not good buys and not likely to turn a profit.
Ready to make an offer?
Most banks have a REO department that you’ll work with in buying a REO property from them. Typically the REO
department will use a listing agent to get their REO properties listed on the local MLS. Before making your offer, you’
ll want to contact either the listing agent or REO department at the bank and find out as much as you can about what
they know about the condition of the property and what their process is for receiving offers. Since banks almost
always sell REO properties “as is”, you’ll want to be sure and include an inspection contingency in your offer that
gives you time to check for hidden damage and terminate the offer if you find it. As with making any offer on real
estate, you’ll make your offer more attractive if you can include documentation of your ability to pay, such as a pre-
approval letter from a lender. After you’ve made your offer, you can expect the bank to make a counter offer. Then it
will be up to you to decide whether to accept their counter, or offer a counter to the counter offer. Realize, you’ll be
dealing with a process that probably involves multiple people at the bank, and they don’t work evenings or
weekends. It’s not unusual for the process of offers and counter offers to take days or even weeks.
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REO vs. Foreclosure
An REO (Real Estate Owned) is a property that goes back to the mortgage company after an unsuccessful
foreclosure auction. You see, most foreclosure auctions do not even result in bids. After all, if there was enough
equity in the property to satisfy the loan, the owner would have probably sold the property and paid off the bank.
That is why the property ends up at a foreclosure or trustee sale.
Foreclosure sales begin with a minimum bid that includes the loan balance, any accrued interest, plus attorney's
fees and any costs association with the foreclosure process. In order to bid at a foreclosure auction, you must
have a cashier's check in your hand for the full amount of your bid. If you are the successful bidder, you receive
the property in "as is" condition, which may include someone still living in the property. There may also be other
liens against the property.
Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure
auctions result in a successful sale. Then the property "reverts" to the bank. It becomes an REO, or "real estate
owned" property.
REO Properties For Sale
The bank now owns the property and the mortgage loan no longer exists. The bank will handle the eviction, if
necessary, and may do some repairs. They will negotiate with the IRS for removal of tax liens and pay off any
homeowner’s association dues. As a purchaser of an REO property, the buyer will receive a title insurance policy
and the opportunity to investigate the property.
A bank owned property might not be a great bargain. Do your homework before making an offer. Make sure that
the price you pay (if you’re successful) is comparable to other homes in the neighborhood. Consider the costs of
renovation, including time to complete them. Don’t get caught up in a ‘bidding war’ and pay over market value. It’s
an old myth that “foreclosures” are a bargain.
How Banks Sell REO's
Each bank/lender works a little differently, but they all have similar goals. They want to get the best price
possible and have no interest in "dumping" real estate cheaply. Generally, banks have an entire department set
up to manage their REO inventory.
Once you make an offer to purchase, banks generally present a "counter-offer." It may be at a higher price than
you expect, but they have to demonstrate to investors, shareholders and auditors that they attempted to get the
highest price possible. You should plan to counter the counter-offer.
Your offer or counter-offer will probably have to be reviewed and approved by several individuals and companies.
Even once an offer is accepted, the bank may insert wording like “..subject to corporate approval with 5 days."
Property Condition
Banks always want to sell a property in "as is" condition. Most will provide a Section 1 pest certification, but not
unless you include it in your offer and negotiate the point. They will allow you to get all the inspections you want
(at your expense), but they may not agree to do any repairs.
Your offer should include an inspection contingency period that allows you to terminate the sale if the
inspections reveal unanticipated damages that the bank will not correct.
Even though you agreed to “as is," always give the bank another opportunity to make repairs or give you a credit
after you’ve completed your inspections. Sometimes they’ll re-negotiate to save the transaction instead of
putting the property back on the market, but don’t take it for granted.
Banks do not want to see a lot of proprietary disclosures; they are exempt from the California Seller’s Transfer
Disclosure Statement (TDS-14). If there are real estate agents involved, either representing you or the bank,
those agents are required to provide you their disclosure statements.
Most banks will not provide financing on their REOs but it doesn’t hurt to ask. Especially if the property has
extensive damage and you are purchasing it "as is."
An REO (Real Estate Owned) is a property that goes back to the mortgage company after an unsuccessful
foreclosure auction. You see, most foreclosure auctions do not even result in bids. After all, if there was enough
equity in the property to satisfy the loan, the owner would have probably sold the property and paid off the bank.
That is why the property ends up at a foreclosure or trustee sale.
Foreclosure sales begin with a minimum bid that includes the loan balance, any accrued interest, plus attorney's
fees and any costs association with the foreclosure process. In order to bid at a foreclosure auction, you must
have a cashier's check in your hand for the full amount of your bid. If you are the successful bidder, you receive
the property in "as is" condition, which may include someone still living in the property. There may also be other
liens against the property.
Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure
auctions result in a successful sale. Then the property "reverts" to the bank. It becomes an REO, or "real estate
owned" property.
REO Properties For Sale
The bank now owns the property and the mortgage loan no longer exists. The bank will handle the eviction, if
necessary, and may do some repairs. They will negotiate with the IRS for removal of tax liens and pay off any
homeowner’s association dues. As a purchaser of an REO property, the buyer will receive a title insurance policy
and the opportunity to investigate the property.
A bank owned property might not be a great bargain. Do your homework before making an offer. Make sure that
the price you pay (if you’re successful) is comparable to other homes in the neighborhood. Consider the costs of
renovation, including time to complete them. Don’t get caught up in a ‘bidding war’ and pay over market value. It’s
an old myth that “foreclosures” are a bargain.
How Banks Sell REO's
Each bank/lender works a little differently, but they all have similar goals. They want to get the best price
possible and have no interest in "dumping" real estate cheaply. Generally, banks have an entire department set
up to manage their REO inventory.
Once you make an offer to purchase, banks generally present a "counter-offer." It may be at a higher price than
you expect, but they have to demonstrate to investors, shareholders and auditors that they attempted to get the
highest price possible. You should plan to counter the counter-offer.
Your offer or counter-offer will probably have to be reviewed and approved by several individuals and companies.
Even once an offer is accepted, the bank may insert wording like “..subject to corporate approval with 5 days."
Property Condition
Banks always want to sell a property in "as is" condition. Most will provide a Section 1 pest certification, but not
unless you include it in your offer and negotiate the point. They will allow you to get all the inspections you want
(at your expense), but they may not agree to do any repairs.
Your offer should include an inspection contingency period that allows you to terminate the sale if the
inspections reveal unanticipated damages that the bank will not correct.
Even though you agreed to “as is," always give the bank another opportunity to make repairs or give you a credit
after you’ve completed your inspections. Sometimes they’ll re-negotiate to save the transaction instead of
putting the property back on the market, but don’t take it for granted.
Banks do not want to see a lot of proprietary disclosures; they are exempt from the California Seller’s Transfer
Disclosure Statement (TDS-14). If there are real estate agents involved, either representing you or the bank,
those agents are required to provide you their disclosure statements.
Most banks will not provide financing on their REOs but it doesn’t hurt to ask. Especially if the property has
extensive damage and you are purchasing it "as is."
| If you are looking for Real estate owned deals anywhere in Los Angeles County please feel free to contact me at 310-409-3649 or email me at Wolf@WolfParlar.com |
| Wolf Parlar - REO/BPO Specialist 22144 Clarendon St, Woodland Hills, CA 91367 C: 310-409-3649 F:323-285-5696 |
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If you are a financial institution or an individual and would like to order a professional
Broker Price Opinion (BPO) please fill out the form below. BPO's are to be completed
anywhere in Los Angeles, CA or within 40 miles radius (See the coverage areas below)
If you would like to see the form used to complete the BPO order (s) click here
Broker Price Opinion (BPO) please fill out the form below. BPO's are to be completed
anywhere in Los Angeles, CA or within 40 miles radius (See the coverage areas below)
If you would like to see the form used to complete the BPO order (s) click here
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