Buying a bank owned property…

There is a lot of interest in buying bank owned properties these days.  Most REOs need repairs and banks usually won’t provide any inspections, so make sure those inspections are alloted in your funds.  After you determine how much it will cost to repair, you will be able to determine if the foreclosure is truly a good buy.  Don’t underestimate the real cost of paint, carpet, landscaping, appliances, light fixtures, mold remediation, dry rot repair, central heat & air, new roof, plumbing, faulty or missing electrical.

What’s an REO…

REO stands for “Real Estate Owned”.  These are properties that have gone through foreclosure and bank or lender has purchased the property back.  An REO is a “cleaner” transaction, in which the bank has removed all the tax liens, evict the occupants and prepare for the issuance of a title insurance policy to the buyer at closing.

It an REO a bargain?

It’s assumed that an REO is a bargain, but it isn’t true.  You need to be careful about purchasing an REO if you intent to make money off of the home.  If you are looking to purchase an REO, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of the repairs and remodeling needed to prepare the house for sale.

Ready to make an offer?

Most banks have an REO department that will work with with you.  Typically the REO department will use a listing agent to their REO departments listed on the local MLS.  Banks usually sell REO properties “as is”, you’ll want to make sure that you include an inspection contingency in your offer to check for hidden damage and terminiate the offer if you find it.

Once an offer is made, you can expect to receive a counter offer.  It will then be up to you to expect the offer or make another counter on this offer.  Expect to not get immediate responses as the offers are only considered on business days, not on weekend.

A lot of short sales have been sitting on the MLS during the last few months and it’s reported that typically lenders are only able to successfully complete about 6 to 7 percent of the short sales coming in. That means many of those short sales will be entering the market within the next few months as foreclosures and will bring home prices down even further down.

People are being mislead by ill advised real estate agents encouraging their clients to entertain counter offers in this down turning market! Many of these properties have been on the market for quite sometime and/or have a lot of properties in different stages of foreclosure. The listing agent is not out for the homebuyer’s best interest.

How would you be when all of these pre-foreclosures hit the market in the next 90 days. You will realize you’ve paid too much. You’ve lost instant equity and a down payment.

The end of the year is expected to yield a bigger wave of foreclosure properties due to the ARM resets that occurred the past couple of months. The next wave of foreclosures is being called the “tsunami” and it’s expected to create a very soggy market to a over-supplied real estate market.

It can’t be stressed enough that there will be a surge in foreclosures entering the market very soon.