Here are my 6 Tips Buying An REO (Bank Owned / Foreclosed Property)
1. Hire a professional and experienced REO agent who can help you navigate the complexities of Buying an REO (bank owned property). An REO agent who has listed REO's would have the knowledge to put the 6 Tips For Buying an REO to good use.
2. Get pre-approved
* A pre-approval let's you know how much home you can afford.
Sellers of REO's, specially the big banks, do not want to waste time as every day they carry the REO
costs them. A pre-approval shows the asset manager (the bank's representative) that your offer is
serious and that you are qualified for the purchase. Especially important if there are several buyers for
the property you want.
* Most bank's require buyers of their REO's to be pre-approved with their own mortgage lending
department to ensure buyer's are truly qualified. So get pre-approved with the mortgage lending
department of the bank you are purchasing the REO from. However you can use your lender of choice
in the actual sale. It is important to note that choosing a reputable Mortgage Lender, preferably a retail
banking institution, will serve to make your offer stronger and ensure the sale will close.
* Some REO's may have been vandalized in the course of foreclosure. You will need to know, from a
contractor, the cost to repair the home and make it habitable to your taste. Your loan officer can show
you loan programs, available today, that will allow a Rehab Loan (203K loan) to be included in your
* Or, because the home is dated, you may want to renovate it to your taste. There are Home
Improvement Loan Programs (203K loan) for that as well that can be tucked into your mortgage loan.
* Ask your loan officer. Dealing with these matters appropriately through the pre-approval process will
help you avoid "buyer's remorse."
3. Ask your Loan Officer or Realtor to help you understand your mortgage payments and the costs
associated with closing the sale:
PITI (Principal, Interest Taxes and Insurance payments)
HOA dues (if applicable)
Closing Costs (escrow & title charges, notary, pro-rata tax payments, etc.)
Cost and Future Value of Rehab or Home Improvement Loans (203K loans).
4. You are making a huge investment when purchasing a home. Consider a Home Inspection, especially when purchasing an REO. Knowing the condition of the home helps you make an intelligent purchasing decision and will help you in negotiating a fair price - in case there are deficiencies found. Compared to the huge investment of a home purchase, the cost of a complete home inspection is minimal. Remember, neither the Asset Manager nor the bank, have lived on the property; thus, would not know if the home has defects. That responsibility falls on your shoulders.
5. Get a Home Warranty. The cost is a few hundred dollars for a year, but the value is considerable. A home warranty covers the cost of repairs or replacement of some appliances, home defects, plumbing, heating, etc. Should your furnace need replacement, a home warranty will replace it and your out of pocket cost will be limited to your deductible and the yearly premium. A furnace can cost a few thousand dollars.
6. Last but not least, do not submit a lowball offer. Although REO's are priced lower for a quick sale, it goes through at least 3 independent Broker Price Opinion's (a mini appraisal) and at least 2 full appraisals to determine its sale price. The seller of an REO knows its market value. You should too. Ask your agent to do a BPO of the property. A tight BPO will help you submit an offer that is reasonable and fair and help you purchase that lower priced REO.
Follow these 6 Tips in Buying An REO. There is more to buying an REO (bank owned / foreclosed property). I am an accredited REO listing agent for Bank of America, IAS_REO, EMC and Chase. Call (408-316-0793) or email (firstname.lastname@example.org) me if you are considering purchasing an REO. I know the transaction process required in successful REO sales. I have managed countless REO's to the closing table.
DRE # 01266541
First Pacific Real Estate
Cell: (408) 316-0793
There is no Rule of Thumb that works in every situation. Make sure to hire a Realtor that you trust and before signing a Buyer's Agency Agreement (that locks you into working with the person for a set period of time) make sure that the Realtor's answer to this same question meets your expectations! Sometimes homes go for less than expected, and some times more...never bid or offer more than you feel comfortable with and don't expect every great deal to go through!
If you're working with a Realtor, utilize this very valuable real estate information resource to its fullest advantage by asking your Realtor for comparables in the area, and then work with the professional to get a sense of the price for the home. Many times, as agents, we've worked with a lot of these banks and we know from experience whether or not their policy would accommodate a lower than asking price offer. In some cases, the answer is NO--and in other instances, the banks are more flexible. Again, your Realtor should know this information. So whilst I would never advocate NOT bidding lower than the asking price for any home (REO, short sale or private seller), I would certainly strongly advise a client to offer a price for the home commensurate to its relative value.
Finally, remember, "price" for any item (be it home or jewelry) is based on the item's "perceived" value which includes the raw cost of the item, its amenities, its desirability and the added "value" from the buyer--and no two buyers look at a home as being worth the same price. The best you can do is to work with your Realtor to determine a price range and to then evaluate the value of that home based on your own personal criteria.
Area Pro Realty-People's Choice
I would suggest you work with an agent who can pull up a report on your area's foreclosed sales to see where are they selling at...
If the report shows the homes are selling less than asking price then you can use that figure as a guide for your market conditions.
There is no rule of thumb that is accurate or that works.
What you need is a very accurate determination of the Fair Market Value of the home. Foreclosed homes often have a substantial amount of deferred maintenance. You need to determine as accurately as possible what the deferred maintenance is and make an accurate determination of the cost to repair the defereed maintenance. You then need to determine a value for your time, and effort that you will expend to arrange to hire the contractors and supervise the work to be done. You also need to determine an amount to compensate you for the cost of money, and your time and effort to get that money. You should also determine an amount of money to compensate you for the risk that you are taking in buying a foreclosed home and making the necessary repairs.. You should use those amounts of money as reductions in the amount that you are willing to pay for a foreclosed home.
For more information please call me at my cell phone: (408)509-6218
Charles Butterfield MBA
Real Estate Broker/REALTOR
Former Real Estate Appraiser
Cell Phone: (408)509-6218
Email Address: email@example.com
If a home is priced right or below market value, people will more likely bid over asking price. It all depends too on how long the property has been on the market. Here in the Phoenix/Scottsdale area, when a home comes on the market that is bank owned and it's priced pretty close to fair market value, there are multiple offers coming in on it. I work with a lot of investors and these past 4-5 months there has been a big change in the market. Inventory has come down and prices have inched up. Have your realtor do a comp on the house so you know what the true value is and then go from there.
Pricing on bank-owned homes varies widely. In a market where homes traditionally sell in 30 days or less, a bank-owned home still on the market without a price reduction after 60 days (double the norm) may seem ready for a lower offer. If the days on market average at 100 days, 60 days probably isn't "ripe" enough for the lender to accept a lower offer.
However sometimes bank-owned homes are speculation homes that builders or ambitious developers did using higher-end fixtures and features, making it improved to a level above the current market "norm."
Learning the highs and lows of the unique market you want to buy within and what are the current patterns will help you make the right choice for you.
Michael is absolutely correct. Work with a professional Realtor. My "rule of thumb" is the same for all offers. Present the strongest offer you think could be/will be accepted. Show proof of funds along with a pre-approval letter from a professional Mortgage Consultant who really understands today's financing complexities. If your offer is less than asking, a Realtor that successfully gets clients offers accepted, will know to validate the offer with recent sales comparables to the listing agent and Bank. They also will have the loan officer contact the listing agent and their "preferred lender" to help get your offer accepted as well. Lots of strategies available for making REO offers and getting them accepted, just not enough room to go through them all.
There really is no rule of thumb for bidding below asking on a foreclosed or REO home.
A better rule of thumb, is to work with an experienced full-time Realtor, who can help you determine what a fair-market price would be.
Foreclosed homes, just like other listings on the market, can be priced all over the map.
It's not uncommon for a home to be priced WAY over market value. Conversely, sometimes homes are priced well below market; the seller hoping to generate multiple offers and therefore a 'bidding-war' to drive the price up.
The bottom line: a home will only sell for as much as a buyer is willing to pay. So if a home is sitting on the market for quite awhile, odd's are, it's priced too high. Be aware, that there are other significant terms to your offer that can help your 'low' offer get accepted. It's all negotiable ;)