When fewer homeowners are losing their homes, it’s a sign that individual “household economies” are improving. According to the National Association of Realtors, 9 percent of homes sold are foreclosures or short sales, down from 24 percent in 2012 and 14 percent in late 2013.
Click here to read “8 Smart Moves for Buying a Foreclosure.”
If you are in the market to buy a home, you may be in an area in which the inventory of available properties is quite low. If so, don’t rule out bank-owned properties, which are somewhat easier to buy than a foreclosure.
Bank-owned properties are different from foreclosures. A foreclosure is sold at auction, so competitive bids can send a well-located home’s price spiraling, particularly if it’s in good shape. However, it’s difficult to discern the condition of a foreclosure because bidders generally are not allowed to enter the property before the auction.
None of that uncertainty accompanies the sale of bank-owned real estate, which is generally similar to other home sales. A property becomes bank-owned if it fails to sell at auction. It may not sell because no bidders showed up at the scheduled auction day and time, or because no one was willing to pay the bank’s set minimum price. Under certain circumstances, a foreclosure may sell at or near market value — which isn’t the scenario most bidders are seeking.
Click here to read “Buying a Bank-Owned Property.”; Zillow.com
The following are 13 things you should know about buying a house that is bank-owned, which is also referred to as a real estate owned (REO) property:
1. Before the bank puts a property on the market, it will make any major repairs to issues that make the house unlivable. Remember, the bank is now a motivated seller just like any other homeowner, so it will incur minimum expenses to make the property marketable.
2. The bank will hire a real estate agent who specializes in foreclosures, short sales and REO to market the home. As a buyer, you can get your own agent to represent you or work directly with the REO agent.
3. You may view the property before making an offer, just as you would with a private homeowner.
4. It’s a good idea to get pre-qualified or pre-approved before shopping or making an offer so that you know the price range you can afford. If you have your eye on a particular REO, getting pre-approved by the lender that owns it may give you an advantage.
5. Once a property becomes bank owned, the bank can sell it at a competitive market price, so it won’t necessarily be a bargain unless it’s been on the market for quite a while.
6. Compare the home to other local, recent and similar sales. You can look up similar sales via Zillow.com, Trulia.com or your tax collector’s website. Comparable properties should have roughly the same number of rooms, square footage and other similar features. Divide the price of each home by its square footage, then combine those numbers to determine the average cost per square foot. You can then multiply the average cost by the square footage of the home you’re considering to see if it’s in a similar price range.
7. Once an REO has been on the market for a while, the bank may continue reducing the price to attract buyers. Remember that every day the home sits empty, it costs the bank money, so they are very motivated to sell these homes. Don’t be afraid to make a lower bid.
8. Banks have to answer to shareholders and investors, so they will attempt to sell an REO at competitive market price. As such, they may counter your offer. Remember however, that you’re dealing with a bank, so more than just the price is negotiable. If you get your mortgage from the same lender, you may be able to negotiate other aspects of the deal as well, such as the interest rate or closing costs.
9. Similar to a foreclosure, some REOs made need extensive repairs. When you make an offer, include language that the offer is subject to inspection. Hire a professional inspector to ensure you learn about all issues and repairs that may come with the house.
10. Ask a licensed contractor for quotes on any needed repairs, and include this cost as an addendum to the contract following the inspection.
11. Just because the house is offered for sale by a bank doesn’t mean it’s priced correctly. If you have a different lender, it will require an independent appraisal to determine the value of the house. That appraised value determines how much your lender will offer in terms of your mortgage.
12. Most banks will clear the title before putting an REO on the market, but you may want to hire a title company and/or conduct your own research to ensure the home is clear of liens.
13. REOs generally take longer to respond to an offer than a private homeowner, so be patient.
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This content is provided for informational purposes only. It is provided by third parties and has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.