Buying Bank Owned Properties

Over the last few years, the Russian River Market has been slower to be impacted by the REO, Foreclosure and Short Sale Market. In recent months, however, there have been some amazing deals that have surfaced and provided a wonderful opportunity for many lucky buyer's who were ready to compete. It is expected that there will be one more big round of opportunity before the bulk of these REO and Short Sales get absorbed. The process for buying an REO, Foreclosure or Short Sale has become dramatically streamlined and easier as the Federal Government and Financial Institutions become more familiar with the process of unloading assets. This could be a BIG BUYING OPPORTUNITY for you right now. The key is to be ready to pounce, so if you are thinking you would like to take advantage of any of these deals, definitely give us a call for the most updated info...

What’s an REO?

REO stands for “Real Estate Owned”.  These are properties that have gone through foreclosure and are now owned by the bank or mortgage company.  This is not the same as a property up for foreclosure auction.  When buying a property during a foreclosure sale, you must usually pay at least the loan balance plus any interest and other fees accumulated during the foreclosure process.  You must also be prepared to pay with cash in hand.  And on top of all that, you’ll receive the property 100% “as is”.  That could include existing liens and even current occupants that need to be evicted. 

A REO, by contrast, is a much “cleaner” and attractive transaction.  The REO property basically did not find a buyer during foreclosure auction.  The bank now owns it.  The bank will see to the removal of tax liens, evict occupants, if needed, and generally prepare for the issuance of a title insurance policy to the buyer at closing.  Do be aware that REO’s may be exempt from normal disclosure requirements.  In California banks are exempt from giving a Transfer Disclosure Statement, a document that normally requires sellers to tell you about any defects they are aware of.

Is it a bargain?

It’s commonly assumed that any REO must be a bargain and an opportunity for easy money.  This is true as often as it's not.  We advise our clients to be very careful about buying a REO if your intent is to make money off of it in the short term.  While it’s true that the bank is typically anxious to sell it quickly, they are also strongly motivated to get as much as they can for it. Additionally, there is no emotional twist for the back. It is an address on a ledger book. When considering the value of a REO, we like to look closely at recent comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs or remodeling you need to prepare the house for eventual resale.  There definitely are bargains out there where serious money making potential exist. Equally true is that there are also many REO’s that are not good buys and not likely to turn a profit. We can help. 

Ready to make an offer?

When you have found a good home to pursue there may be a few more REO specific obstacles. Most banks have a REO department that we will work with in buying a REO property from them.  Typically the REO department assign the sale to a REALTOR® in order to get their REO properties listed on the local MLS.  Before making the offer, we'll want to contact either the listing agent or REO department directly at the bank and find out as much as we can about what they know. Specifically if there have been offers, any reports available and what the history is.  Also, we will want to know their specific instructions for receiving offers.  Since banks almost always sell REO properties “as is”, we'll want to include an inspection contingency in your offer that gives you time to check for hidden damage and to ensurer there are no issues with the County etc. As with making any offer on real estate, the offer will be considered more seriously we can include a pre-approval letter from your lender of choice. Again, we can help here if you need it. After we've made the offer, you can expect the bank to take some time to "review" it. And it is likely they will make a counter offer. As always, it will be up to you to decide whether to accept their counter, or offer a counter to the counter offer. We will be able to assist in the strategies and timing here to help you get the best price with the best terms for you.

Why is the taking so long?

One element that is VERY different about REO's is that it takes much longer for the offers to be reviewed and accepted. This is a bureaucracy thing. There is very little to be done to speed the process up, and in many cases, the REO department may penalize buyers for pestering and hounding them or their agent for information that is not available. It's best to realize, you’ll be dealing with a process that probably involves multiple people at the bank, and they don’t work evenings or weekends.  It’s not unusual for the process of offers and counter offers to take many days or even weeks. We will be there to provide updates and to know when it's the right time to contact people to get answers.

Please contact us with any questions you may have.