If you’re purchasing a home in today’s real estate market, you’ll probably find a lot of Real Estate Owned houses or REO properties for sale in your area.
Real Estate Owned properties or bank-owned houses may not necessarily offer the cheap foreclosure deals that you hear about in late-night infomercials, but you can often find low-priced REO homes for sale in comparison to similar properties.
Here are a few tips for purchasing real estate owned houses, so you know what to expect when purchasing property directly from a bank or lender.
Who Owns REO Properties?
Real Estate Owned houses are homes that failed to sell at a foreclosure auction, and the bank now owns the property.
The bank will handle the eviction if necessary, negotiate with the IRS for removal of any tax liens, and pay off any homeowner dues if applicable.
However, the bank is not always trying to sell the house at the lowest price possible, so don’t expect to low-ball the bank with an extremely cheap offer on a house.
Who Sells REO Houses?
REO houses are usually shown by seller real estate agents who represent the bank.
They act just as any seller agent would by setting up appointments either with you or your realtor to see the house.
You would make any offers through this real estate agent as well, and for all practical purposes, you would usually never deal directly with the bank that is selling the house.
Purchasing REO Houses “As Is”
Real Estate Owned properties are sold in “as is” condition, but you’ll still be able to inspect the home as you would when purchasing any other house.
When making an offer on an REO property, you may want to include an inspection contingency that allows you to withdraw your offer if unexpected damages are found during a professional inspection.
However, the banks won’t necessarily negotiate the price down for any repairs that are found to be needed during an inspection, so you may want to consider this before paying for an inspection in the first place, if you plan to purchase the home either way in the end.
When viewing the home on your own, make sure you check all of the major home components closely, such as the roof, furnace, water heater, etc., to make sure you spot any potential damages that could require additional expenses.
A full professional inspection may cost you around $500, and that money could go towards any potential repairs, so you’ll really have to consider your options when purchasing a bank-owned house.
Bidding on REO Homes
Unlike bidding on houses from a homeowner, where you may give 48 hours as a response time on your bid, banks may require you to provide them with as long as 60 days to accept or reject your bid.
Once you make your bid on the house, the bank will usually sit on your bid for the full time period and wait for any higher offers on the house.
Banks are usually looking for a homebuyer with a clean offer, preferably with a pre-approved loan, as it’s unlikely the bank will also provide you with financing for your home loan.
Your best bet at having your offer accepted will be to offer the price that the bank is asking with an extremely clean offer and letter of pre-approval from your lender.
Of course, everybody wants to bid less than the asking price on a home, but don’t expect the bank to jump on your offer if you make a low bid.
The bank is not in as desperate of a situation as you would hope is the case, and their patience is endless, unlike the homebuyer who is usually riding on adrenaline after looking at a dozen houses in the last 3 days.
Deposit Required with REO Bid
Some banks may require a deposit along with your bid in the area of $1,000, which will go towards the payment if your offer is accepted.
You’ll be required to make this deposit when you offer your bid on the house, and you may only receive this deposit back if the bank does not accept your offer, as you may not be allowed to withdraw your offer and request your deposit back.
However, not all banks require this deposit, and the terms of the deposit may vary between different banks.
Purchasing Real Estate Owned Properties
In general, purchasing REO properties or bank-owned properties is more of a hassle than purchasing a house from a homeowner.
However, you may be able to find cheap prices on REO homes in your area, depending on the local real estate market.
It will require some patience when bidding though, so be prepared to spend a lot of time waiting while you try to purchase a Real Estate Owned property.
Take advantage of these tips on purchasing REO properties to know what to expect when bidding on a Real Estate Owned home.