So, do you want to buy a house owned by a bank? One morning, while he is driving to work, she is listening to the radio, and suddenly a voice is heard saying: “Do the bank a ‘favour’ and, in the meantime, help yourself make a deal.” He’s at his peak and hangs on to every word long enough to remember the interests of the number 1800 when he walks into his office. If you’re like most people, a bargain is a bargain, and who wouldn’t jump at an opportunity to save money or make some money? But then reality sinks in and you admit you know nothing about foreclosures or REO holdings.
The following article will help clarify and point out the differences between REOs and foreclosures so that you can understand the buying process and what is involved in banking bank-owned homes.
First, the difference between an REO and a foreclosure can be understood by looking at who is involved in the sale. If there is a trustee or foreclosure auction, the owner may not have had enough capital to sell the property, pay a real estate commission, and all other fees associated with the sale. In which case, at a foreclosure auction, you should have a cashier’s check on hand for the loan balance, interest, attorney fees, and other costs associated with the foreclosure process.
When you buy a foreclosed property, you almost always agree to buy it in “as is” condition and agree to inherit all tenants currently living in the property and any other liens against the property. Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property “reverts” to the bank. You become an REO, or “real estate owner” property.
When the property is sold as an REO, the bank will hire a real estate agent and, in some cases, evict the tenants and do their own inspections or minor repairs. All banks work differently, but most will want to sell the property in “as is” condition.
You can place a bid with an inspection contingency. You are entitled to as many inspections at your expense, and you can rescind the sale if the inspection reveals unforeseen damage that the bank will not correct. Before your offer is accepted, the bank must demonstrate to shareholders that it is doing all it can to get the best possible price. Therefore, they will most likely respond to your offer before or after you do your own inspections. Don’t be surprised if the counter price is substantially higher than the list price. This is where the wheels find the way. Don’t get into a bidding war and pay above market value. You should also consider the cost of the renovations and the timing of the repairs to help you determine if it’s still a bargain.
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