So you’d like to buy a bank owned property?
You’ve watched the late-night infomercials and you’re ready to do the bank “a favor” and take a problem off their hands. Plus, you expect to make "a killing" in the process. Sounds great and it might just happen, but first you should take a look at some facts and get prepared.
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, it may require 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.
Many REO properties listed are sold "as is with the seller to make no repairs." Usually the seller has a corporate addendum with "AS IS" clauses that the buyer must sign as part of the sales contract. Most of the REO properties listed have been acquired by the selling corporation (seller) through foreclosure. Many of these properties may have been neglected during the foreclosure process.
In most cases the seller does not provide a sellers disclosure statement. Information regarding how the former owner maintained the property other than as evident by the current condition of the property is not available.
The seller has considered the "AS IS" condition when establishing the asking price. Each corporation has a number of days they allow for inspections. The cost of all inspections is the responsibility of the buyer. If as a result of the inspection the buyer feels the property needs more repair than expected and notifies the seller's agent within the number of days allowed for inspections, the buyer may withdraw the offer to purchase. The sellers seldom renegotiate the sale price after the inspections.
It is very important to be properly pre-qualified for financing prior to making offers. Prior to acceptance of a contract, the sellers always require verification of the buyer's ability to finance the purchase.
Offers are usually FAXED or EMAILED to the bank. The listing agent needs your originals. There is no formal presentation. When presenting an offer to purchase an REO property, it is important the buyer recognizes that the seller is a corporation not an individual. All of these corporations are out of the Savannah area, and most will even be in another time zone.
Your offer is presented the same business day received. Offers received on weekends and holidays or when the office is closed are presented the next business day.
Sometimes the corporate asset manager responsible for making the response for one reason or another may not be able to respond within the time line required by the contract.
As with any real-estate transaction, when responses are not received within the time line required the deal is dead. However, if either party is still interested in continuing the negotiating we will make every effort to set the process back on track.
Occasionally we receive more than one offer on a property. When this happens the seller will instruct us to notify all buyers that there is a multiple offer situation and to deliver by close of business the next day each buyer's best and final offers.
We then present all of the "best and final" offers to the seller. The seller reviews all the offers. The seller is not obliged to accept any of the offers. If none of the offers reach the sellers requirements for the sale, they may counter the buyer who has presented the best "best and final" offer.
If the first buyer that the seller counters and the seller do not reach agreement, the seller may counter the other buyer(s). Sometimes before the seller has reach agreement with any of the buyers who were in the multiple offer group, we receive an offer from another buyer. We then inform the seller that another offer has been received.
When evaluating offers in a multiple offer situation, the seller is looking at many aspects of the offers. Sale price is not always the ruling factor in the seller's decision.
Buyers who make cash offers should be prepared to present to the seller verification of funds available to close.
Each corporate REO department is responsible for assuring that the closing and transfer of ownership to the buyer follow the procedures and guidelines set by their corporation. Most corporate sellers have established relationships with attorneys that are trained in the unique closing procedures required by the individual corporate REO departments. The closings from the buyer's perspective is no different than the closing of any other real estate transaction.
Most often the corporate seller is not concerned with which attorney the buyer chooses to close the buyer's side of the sale.
Sellers expect to close on the date agreed upon in the contract. Seldom are the sellers willing to extend the closing date. Usually they instruct us to reactivate the listing immediately if the buyer does not close on the date specified by contract.
Sometimes corporate sellers will sign contract addendum extending the closing date; however, they almost always require a per diem as a condition for extending the closing date.
The per diem is an amount per day multiplied by the number of days past the contract closing date. The per diem amount is then added to the sale price. Example: If the per diem is $50.00 a day and the closeing is ten days late the sale price is increased by $500.00.