Buying an REO
I have been listing and selling REO's for a major Asset Management company for 4 years. My expertise can help you navigate and understand the process of buying an REO.
Here are a few tips to help you purchase an REO.
1) Who is selling the REO (bank owned property)
Most banks use Asset Management companies to market their REO's. These Asset Management companies usually are not in the region of the country where the property is located. Picture a large office full of young people with stacks of files on their desk. Decisions are not, as with usual real estate sales, a combination of emotion and property comparables. Remember, the Asset Manager, or the owner of the property, has no emotional ties with the property. An understanding of what the Asset Manager needs to get your offer accepted is very important.
2) Determine Comparable Sales for the REO Foreclosure
As mentioned above, the market value carries the most weight.
- I'll look at the last three months of comparable sales, a mini CMA, for that neighborhood to determine how much this REO foreclosure is worth. We'll use only those homes that most closely match the REO regarding square footage, number of bedrooms, baths, amenities and condition.
- (I'll Look at the pending sales. I'll call the listing agents of those pending sales to try to find out the accepted offer price. Some will share that information and some will not.
- I'll look at the active listings. Those are most likely the listings other buyers will use to formulate a price because they are the only homes those buyers actually tour.
3) Analyze Listing Agent's REO Solds
Most REO agents work for one or two banks. Some listing agents are exclusive listing agents for REOs, and they do not list any other type of property. Since REO agents deal in volume, they typically apply the same pricing principles to all their REO listings. My experience dealing with Asset Managers and REO agents will give your offer an inside track.
4) Ask About Number of Offers Received for that REO Foreclosure
If there are no offers on the REO home, you can probably offer less than list price and get your offer accepted. However, if there are more than two offers, you will most likely need to offer above the asking price.
Bear in mind that some of those offers might be all cash. And in some instances banks like all cash offers. If you are obtaining financing, then you may need to increase the price on your offer to be considered.
5) Submit Preapproval Letter
It goes without saying that you do not want a prequal letter. You want a preapproval letter. Get preapproved from your choice of lender in advance.
Moreover, most banks require a preapproved by the lender who owns the property. Though the Bank cannot force you to use their lender not expect to use this lender for your loan, but submit the prepproval letter from this lender, along with the letter from your own lender. Banks don't trust other lender preapprovals but trust their own departments and many instances the transaction will be smoother with the seller's approved lender.
6) Banks do Pay for repairs to property after inspections.
Banks will sometimes agree to required City reports and transfer fees, but rarely pay for repairs upfront. I will negotiate with bank for a credit if there are problems found during a home inspection.
7) Shorten the Inspection Period
If other buyers ask for 17 days, for example, to conduct inspections, and you ask for 10, you will be deemed the more serious buyer.
8) Consider the Appraisal Consequences
If you offer over list price, bear in mind that the appraisal will need to substantiate that price. If you find yourself dealing with a low appraisal, you have options, so don't despair. Remember, the bank will most likely run into this problem with the next buyer who obtains financing. It's not unusual for some REO foreclosures in the Bay Area to receive multiple offers. Sometimes the bank will throw out all but two offers and then ask the selected buyers to resubmit what is called "Highest and Final" offer. Sometimes the bank simply accepts the best offer at inception. And many times a cash offer
