How to Buy Bank Owned Foreclosures

Bank Owned ForeclosureBanks acquire a number of houses through foreclosure. These properties on books of banks are called “REOs”. Banks are supposed to buy these properties because the owners failed to pay the mortgage payments and no one made the reasonable bid at the time of auction.

It might seem that foreclosures are profitable especially if the banks want to sell properties in the open market for the price that was once owned to the bank by the previous mortgage.

Two Reasons why the REOs can be profitable

  1. If property has two secured loans that is common these days, the second lender sometimes does not opt for the foreclosure. If the second lender does not make up the back payments to the first lender and commence its own foreclosure proceeding.
  2. Most of the banks do not want to retain the inventory. They just want to get rid it off because no one made the reasonable offer at the time of auction and bank has got its investment stuck. So, they want to sell as low as they can get something from that house.

REO Listing Agents

There are a number of places where you can find foreclosures. Internet has made this really easy. You can search on many websites that list real estate and foreclosure properties. One of the better option is to find in MLS. You will probably find that a very small handful of real estate agents that specialize in listing REOs for sale in your neighborhood. If you ask your buyer’s agent it will make your search easy.

Here are tips about REO listing agents:

  • The majority of the REO listing agents only lists RESs and they don’t list other type of properties.
  • Because these agents deal in huge volume so they give discounts to the banks in return of its business.
  • REO listing agent sometime make money either selling a lot of REOs or providing dual services. Under dual agency, the REO listing agent will earn both the listing commission and the buyer’s agent’s commission.
  • Many banks offer a larger percentage of the commission to the buyer’s agent while discounting the listing agent’s commission, to attract buyer’s agents.
  • The majority of the REO listing agents normally represent the seller, not the buyer.
  • Some REO listing agents have great reputation and they are so busy that they hire assistants to field calls.
  • REO listing agents are normally top-producing agents because they conduct business on huge volume.

Hiring a Buyer’s Agent

If you are not an experienced negotiator and have expertise dealing with bank, you need to hire the services of some skilled negotiation agent for better presentation. Before selecting the negotiation agent, you should have meetings with a number of agents to find the good one for you.

  • Hire a buyer’s agent who has experience working with REOs.
  • Buyer’s agents do not represent the seller.
  • Buyer’s agents are generally paid by the seller.
  • Buyer’s agent have a fiduciary responsibility to protect your interests.
  • Buyer’s agents may ask you to sign a buyer’s broker agreement, which will lay out the agent’s duties to you and specify who pays the commission.

Negotiating with REOs

Buyer’s agents may ask you to sign a buyer’s broker agreement, which will lay out the agent’s duties to you and specify who pays the commission.

The bank will not much deviate from the asking price if the listing is quite new in the market. You can have better negotiation on the homes that are old in the market and are listed more than thirty days.

Here are some tips to negotiate with REOs

  • Majority of the banks don’t want to pay the closing costs and move away. Some fees are paid by the buyer such as transfer taxes, county and state fees and not the bank. Banks normally do not pay for repairs or home warranty plans and pest reports.
  • If the bank doesn’t accept your offer and is rejected, you should wait for next thirty days and resubmit the new offer with the original date crossed off and your new date inserted.
  • Be patient. You might have to wait ten days for a response to your offer from the bank.
  • The bank may ask to submit a loan application so it can prequalify you, but you are not obligated to obtain your loan from that bank.
  • The bank may charge you a penalty for each day you pass that date, if you could not close by the determined closing date.  Make sure that you have preapproved loan from your own lender before submitting the application.
  • Most of the foreclosed homes are not available for inspection and you may be asked to buy the home “as is”. Keep in mind that there are some draw backs of buying foreclosure homes.