Real Estate Owned properties (REO’s) can be tremendous values. But they are not without risk. Prior to writing an offer on a bank-0wned property, make sure you balance out the risks and rewards.
Contract Elements: Banks often have very specific instructions that must be followed for an offer to even be considered. They may prefer a specific title and escrow company. They often request that you are pre-approved with their loan officer. And it’s likely that you will receive verbal acceptance far in advance of their written acceptance.
Counter Offers: You will receive one, even if the bank accepts your price. These documents then supersede your initial offer. Understand that these are written by attorneys for the bank and can be very lengthy. You’d be well advised to have this reviewed by your own attorney.
Disclosures: The bank agents and principals in the transaction have never lived in the property and won’t provide disclosures about the properties condition. Many of the documents you received will simply state ‘exempt’.
Price: Prior to listing the property, the bank has done BPO’s (Broker Price Opinion) to ascertain the value of the property. Usually bank owned properties come on the market below market price already. In the Tri Valley, most bank owned properties received multiple offers which exceed the list price. That said, many of the agents hired to list these properties cover large geographic areas, and the price may not reflect local market value. Have your buyer’s agent provide comps before writing your offer.
As-Is Clause: All real estate contracts in California are As-Is. Traditional sellers often negotiate repairs with buyers, but that is rarely done by banks acting as sellers. Your full inspection of the property becomes very important as you will be responsible for any maintenance or repair items. These inspections will tell you the true cost of owning the property.
Timelines: Banks want to close escrow as quickly as possible. Cash offers are going to appeal to them most if the price is acceptable. They may ask you to shorten your contingency periods for inspections. If you’re the buyer and experience any delays due to your inspections, loan approval, etc. – you may be slapped with a per diem fee for late closing. But if the bank hangs up the transaction, they suffer no consequences. This is a risk you must fully understand. Your move-in date can be impacted, or your interest rate may rise while you wait out their process.
Easy to See – this is where bank properties have an edge. They’re vacant, so no showing instructions to follow and you can go any. However, the listing agents for these properties aren’t always easy to get a hold of, as sometimes all communication is done by web-based programs and information in the MLS isn’t always up to date.
There may be some bumps in the road on a bank-owned property purchase. However, most transactions today come with challenges. Knowing what to expect can certainly keep you better prepared along the way. And the low prices and still low interest rates may make foreclosed properties quite attractive.
