Buying Bank Owned Homes

People often ask about the differences between buying a bank owned home and a “regular” home purchase. In many ways the process is similar to buying a home from an individual, except the owner is a financial institution.  However, there are some major differences to be aware of with the process of buying a property from a bank.

The first thing to be aware of is that the banks almost always include language in their listings that say the home is being sold “as-is.” What does this mean to you as the buyer?  Well, don’t expect the bank to make any repairs to the home.  What you see (and don’t see) is what you get.  Buyer beware!

The second thing to be aware of, something that frustrates many people pursuing bank owned homes, is that banks can (and most likely will) take a long time to respond to offers.  Often it can take 3 to 5 business days for replies from the bank. I know people will read this, but still get frustrated on day 4 after asking their agent for the 100th time, “hear anything yet?”  These deals should all come with a bottle of the pink stuff, for the buyers and the buyers’ agent.

Another thing to be aware of is that bank owned homes will usually drop in price until they are sold.  After foreclosing, the banks don’t want to keep the asset on their books too long because it is a financial liability.  Every month the home sits vacant they are paying taxes and other fees for the property and the home risks damage from vandalism and wear and tear with no income coming in.  Once they drop the price low enough they will get a flood of offers and usually the “highest and best offer” will be accepted.  If you want to have a better chance of successfully buying a bank owned home, you want your offer in before the flood gates open. Have your buyer agent watch the market for you and notify you right away of price changes.  Once it drops close to your target price (even if it is still 15 to 20% above your target) get your offer in and start negotiating.

Once you have a verbally accepted offer on a bank owned/REO home, the banks usually DO NOT sign the buyer’s offer to purchase form when they accept an offer. They will probably want to go directly to a purchase and sales agreement and will often stipulate that their will be no changes to their P&S agreement and they will want it back within a certain number of days (usually 2 or 3).  I highly recommend that you have an attorney review your purchase and sales documents before signing them to make sure you understand what you are signing.  The contract to purchase is a binding legal document.

Okay, so the bank wants to skip from verbally accepting my offer to sending me a P&S.  Wait a minute, aren’t we forgetting something?  What about my home inspection contingency.  Have you buyer’s agent ask the listing agent if they will accept your home inspection contingency. If they don’t include the inspection contingency in the P&S document, you may want to conduct your inspection (at risk) prior to signing the P&S documents.  Again, the bank may not agree to fix anything discovered in your inspection, but at least you have the opportunity to back out if let’s say the heating system is shot or you find out that the home is infested with termites or that the heating system is shot.

Once you and the bank sign the purchase and sales agreement, the next step is closing.  Don’t be surprised if the closing date slips and you have to file an extension. There is a good chance that this might happen for one reason or another.

With all home purchases it is a good idea for the buyer to consider purchasing a home buyer’s title insurance policy. See my previous blog post on this subject.  With a bank owned home there could be a higher chance of title disputes and you may want to seriously consider a buyer’s title policy that would cover you as the buyer in the event of any title issues after closing.

So, are all of these headaches worth it?  Well, in the end you could get a heck of a deal on a home. You just need to understand the game, be patient, use the services of an experienced buyer’s agent familiar with bank owned home purchases, and have a little luck on your side.

Good luck with your REO/banked owned home purchase!

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