Bank-Owned or REO Properties
Purchasing a home from a bank is very different than buying from a homeowner. If a problem is found during the home-buying process, it may take the bank longer to resolve the issue than it would a homeowner. As with short sales, home buyers need to be aware that foreclosures can take longer because most banks are overwhelmed with properties and do not have enough qualified staff to handle all requests. That is not to say that all banks will be inefficient or take longer, but the buyer should be aware that there may be little or no control over the exact closing date, or the bank will require penalties if the buyer delays the closing, or some other part of the escrow, while the bank personnel deal with the transaction on their schedule, not the buyer's.
In previous years, when home prices were increasing, banks didn’t have to keep foreclosed homes on their books long. Often, investors would purchase the foreclosures through court auctions. However, as home prices declined, especially in the past two years, many investors decided to delay purchasing new properties. Banks then had to concentrate their efforts on selling to the general public, which often takes longer. Bank-owned properties may not be in top showing condition--they may in fact be "cosmetic fixers".
When a bank repossesses a home, it typically conducts a search to determine whether there are other claims on the property. The time frame is usually from when the owners took out the mortgage to the time the bank repossessed the house. Any pre-existing condition problems, or new ones, usually surface at closing time, when a more thorough search is performed by the buyer and his/her physical inspector.
Buyers should be aware that banks usually sell homes in an “as-is” condition, and on the bank's terms. Even though buyers are informed of this before beginning the home-buying process, some are unwilling to agree to the bank’s terms when it’s time to finalize the deal and sign addendums to the contract. In the last recession of the 1990's, many banks would arrange through their listing agents a clean-up of the property to encourage a faster sale. In today's market however, fewer properties seem to be rehabbed, and the bank often wants to sell the property "as-is" with little or no negotiability for repair. Many of the bankss additional addendums seem quite unilateral and designed to protect the bank, and a buyer is advised to read these addendums carefully since some terms and conditions may conflict with the standard terms of the buyer's offer.
If you're planning on making an offer on a bank-owned property (or REO, "real estate owned"), you should include with your offer an REO Advisory which addresses in greater detail conditions or circumstances which may be part of your transaction with the bank. While it will not change the bank's response to your offier, it will make you, the buyer, more fully aware of what you should expect in the transaction. This is a very different type of seller-buyer relationship than a motivated "live-in seller" who is willing to deal with a motivated buyer.
Find more information about programs for REO properties.
