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Buying Bank Owned Real Estate

Pros and Cons of Buying Bank-Owned (REO) Foreclosures

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The growing number of foreclosed properties in the Philadelphia Metro Area has piqued the interest of potential home buyers as well as investors. While bank-owned properties can be a great opportunity, you need to be aware of the pros and cons of buying foreclosed homes to you can make an informed decision.

PROS:

  1. You get clear title to the house: Buying bank owned is not nearly as risky as buying at Sheriff Sale. The seller will clear any existing liens and give you clear and marketable title to the house.
  2. Properties are generally priced for quick sale and may present a great opportunity: Banks are in the business of lending money, not owning real estate. Unlike traditional sellers who may have an emotional attachment to their homes and often overestimate their values, banks understand the real estate market and know what it takes to move a home – the right price. Asset Managers for the banks are charged with disposing the properties quickly. Know, however, they have done their homework and will not sell homes at ridiculous prices either.
  3. Transactions can generally be completed within a standard time frame: REOs are not the same as short sales. The owner bank is ready and motivated to sell to a ready and qualified buyer. Cash transactions can often be completed in 2 weeks.
  4. The seller may provide incentives: Government institutions and large banks may offer special financing or pay for some closing costs. Make sure you find out if incentives are available and how you might take advantage of them.
  5. The seller MAY negotiate repairs, even on AS-IS sales: Foreclosures are usually sold AS-IS, meaning that you are getting a good deal on the house, but you are accepting responsibility for necessary repairs. However, if repairs are required by the municipality or your lender it is possible (but not guaranteed) that the seller will make the repairs necessary to get the property sold.
  6. Some larger banks are actively seeking primary buyers: It can sometimes be hard to complete against investors with cash on hot properties. You may find that some REO properties, including HUD homes, have a waiting period for investors. During this time only owner-occupants can bid on the home.

CONS:

  1. Homes may be beaten up: Typically REOs have not been treated with kid gloves. Most will need at least cosmetics; many need major rehab work. These are generally not “Do-It-Yourself” projects. You will need a professional contractor involved. The financing options may also be very limited.
  2. Well priced properties may not last: Buyers today tend to think they have total control when it comes to bidding on homes. This is definitely not the case when a home is priced to sell. We often see multiple offers on these properties. You will need to act quickly and be prepared to deliver your “highest and best” offer.
  3. You may not receive a fast response to offers: We tend to want 24 hour response time of offers, but you will need to allow more time to get a response from Asset Managers. For starters they do not work weekends, and offers may need to be reviewed by more than one person. It should be noted that we do also see very quick responses on some transactions.
  4. There will be additional CYA paperwork to sign: There will be a “corporate addendum” that will specify the banks terms in additional to a standard agreement of sale. You won’t be able to change or negotiate these terms, so be 100% sure that you read and understand everything in this paperwork.
  5. Buyers must be pre-approved with seller’s lender of choice and must have proof of funds: You must be financially ready to buy for your offer to even be presented to the seller. Sometimes lenders will require that you be pre-approved with them so they can be sure you are qualified. If you are a cash buyer, you will need to show bank statements with enough available funds to complete the purchase.
  6. There may be additional costs: Bank-owned properties may be “winterized” and have no utilities. You may need to pay to have the utilities turned on for inspections and/or appraisals to be completed.
  7. There may be delays in closing: Sometimes it takes a while for the paperwork to be completed after the property reverts to the bank. The foreclosure deed will need to be recorded, and all liens will need to be paid before the bank can sell the property to you. Sometimes this process can drag on for a stupid amount of time.
  8. Properties are vacant and may be subject to vandalism: Oh, did you want the copper pipes in the house? So do the creepsters that search out vacant homes and remove anything of value – copper, appliances, radiators – you name it, they’ll take it. YES, they have taken kitchen sinks. Usually banks will compensate you if anything happens between contract and closing, but if the damage is serious enough there can be major delays, or they may cancel the sale altogether.

 

We are experienced REO agents, representing both banks and purchasers in these transactions every day. Don’t be sorry when you find out your agent was not knowledgable about selling foreclosed properties. We will help you navigate the REO waters with ease.

Contact us for more information on available bank owned properties.

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