Purchasing Bank Owned Homes

I have come across a lot of people with misconceptions about purchasing Bank-owned homes. Whether it is advice from the guy at the water cooler or the late night infomercial selling books and software to locating and buying foreclosed homes, it's made for some great buyer questions.

Banks are not your traditional seller- Unlike your traditional sellers who have many motivations for selling and who may have heart ties to the home that make for interesting and methodical negotiations, a bank mostly cares about their bottom line. The numbers. When it is all said and done, how much are they walking away with?

You can low ball if you like-If my buyer wants to make a very low offer even after I have presented all of the facts, CMA's etc about the home then I present it. But I do advice them that it may be rejected. A lot of buyers assume that banks are desperate and that they will take what they can get, so they offer extremely low ball offers that tend to be reject. I have seen bank-owned homes sit for months, I and know for a fact that there were several offers on the home. They have a time line and a bottom line that only they and the Listing Agent know about.

The offers aren't presented to a person first-The basic information is entered into a program (sales price, buyers financing, earnest money amount, closing date, contingencies, etc.) that REO Agents use and the program determines if the offer is worth sending over to the decision makers. You can probably understand why most use this method. They have a portfolio full of properties to sell and many offers being submitted. It's their way of streamlining and weeding out the weak offers from the strong (most likely to close and bring a better bottom line). Also, it may take anywhere from 2 days to 10 business days to get a final agreement.

Personal Property- They are trying to sell a home, not personal property. For every bank-owned property that I have dealt with they don't even want to see personal property in the Purchase Agreement. They do not know the condition of the stove or dishwasher, etc. and if for some reason they promised it to you in the offer and someone broke into the home and stole all of the appliances they would be responsible for replacing the items. I have seen banks say do not ask for property but if it is still there after closing you can have it.

All are SOLD AS-IS- It is what it is, no warranties. ALWAYS HAVE A HOME INSPECTION DONE!! You have to understand that the bank has probably never set foot into the home. All they have (usually) are pictures and the listing agents detailed reports. That means after closing you can't come back to them because the pipes burst as soon as frost hit, or there was mold behind the walls. In fact, in most of the required contracts from banks warn you that they are not responsible for anything after closing. If you want the house you have to sign the doc. (Read these carefully and have a lawyer look them over if you are unsure of what it means).

I am not trying to discourage you from pursuing bank-owned homes, it has been the majority of my business this year. We have had successful closings with banks, the majority of them have been a pleasure to work with. If you are in a market where the majority of choices are bank-owned then go after them. There are some great deals to be had. Just go in with your eyes open, realistic expectations and use a Realtor that you trust and who will take the time to point out all the blind spots.

Have you run across any stories dealing with bank owned properties? I would love to hear them, good or bad.