There are myriad sites online dedicated to detailed explanations about foreclosures. This is not going to be another “how to” guide. Instead, I am going to try to provide you with some insight and examples of real hurdles encountered during my recent experiences representing Lake Norman buyers through the process of purchasing foreclosures or bank-owned properties (REOs). In my next post I will do the same for shortsales. If you take only one thing away from reading this post, it should be that no two sales transactions are alike. Be prepared for the unexpected. That said,
REOs (Real Estate Owned) or Bank Owned properties are MUCH easier to purchase than ShortSales
When a bank owns a property, you can usually count on the fact that as a seller they are going to care about one thing and one thing only: their bottom line. They have been through the long foreclosure process, they own this property along with many others and they want it off of their books. It’s about as unemotional a transaction from their perspective as is possible.
Most of the time the listing agents of REO properties do nothing but REOs. They have been hired by a bank because they are good at processing paperwork and working with the bank’s systems and staff. They want a quick, easy sale. It is all about numbers to them as well. This is a business transaction, it is not about relationships or empathy. In the case of several of my buyer’s REO purchases the listing agents had never even seen the property and their offices were located far from the listing. In most cases I have found that these agents really don’t want to be contacted unless it is really important. They want the buyer to fill out the paperwork to the satisfaction of their sellers including each banks’ own addenda protecting them from just about everything. They don’t want to hear about repairs or problems related to the inspections or even having utilities turned on or the property de-winterized for inspections. (But they will when prodded). Take it or leave it and the sooner the better. The only thing they worry about, and rightfully so these days, is the buyer’s loan. Always be pre-approved and have your loan pretty much in place before writing an offer.
REO’s come in many different states of condition. In some cases, especially if they are new construction, they will be in excellent condition. There are some beautiful new construction foreclosures that I have shown in communities like The Point, The Farms, Bay Crossing and Northington Woods. Our Lake Norman home builders have been hit particularly hard these past two years; many have gone under leaving an inventory of spec homes some of which are still active listings.
However, many homes, especially those that were lived in and abandoned by the homeowners, can be in various states of disrepair. I have seen houses that have been stripped of everything including cabinets, toilets, appliances and light fixtures. Some have been trashed by their angry owners before leaving. I’ve seen holes in walls, shattered doors and the like. Others are truly “fixers” in every sense of the word. Some new construction homes, especially close to the lake, were abandoned by the builders before completion so the buyer will have to finish the work and get the permits signed off before moving in. It is especially important to look for signs of moisture problems. (From broken pipes to drainage issues. When homes sit vacant many things can happen and go unaddressed.) It is important to be diligent about inspections of bank-owned properties!
One of the homes I sold several months ago had had mold as a result of some moisture issues which had been such a detriment that the bank actually had the mold remediated. My buyer was willing to take on the moisture issues (after numerous inspections and estimates by mold and moisture experts) and the other repairs related in most part to the house having been vacant for 2 years. The result? My buyers purchased a 7000 sq. ft. $1 Million+ waterfront home with a dock in the$600,000’s.
Banks do negotiate. They get really tired of low-ball offers by investors. In my experiences, the banks came down in price more than the listing agents expected. (About 8% in one case). Banks tend to use pricing systems that dictate price reductions on a schedule. But, they also want these properties off of their books. I had one offer accepted on a Friday afternoon after the listing agent had told me there was no way it would be accepted. Perhaps on that Friday afternoon the bank looked at their numbers and decided they needed to get more properties off of their books. Don’t give up!
Know the recent comparable sales and determine ahead of time what price you are willing to pay based upon those comps and the amount of out-of pocket expenses for repairs. As long as your inspections and loan goes smoothly, you should be able to close the sale within a short period of time with little drama. (Of course, your own loan and the inspections could add a bit of hard work).
If you are willing to take on a house that has issues and no disclosures or warranties then an REO may be for you. Inspect the property thoroughly with experts in their fields so you know what you are buying.
Stay tuned for Part 2 of this series which will share some of my experiences with short sales.