Banks own real estate because they have acquired the homes through foreclosure. Homes owned by banks are known as REOs, or “real estate owned”. You should know that when banks acquire properties through foreclosure, it's because no one showed up on the courthouse steps to bid the minimum amount of the existing mortgage(s). It might not sound as though foreclosures are not a good deal, especially if the bank wants to sell it on the open market for the amount that was once owed to the bank by the previous owner(s). However, here are at least two reasons why an REO just might be a good deal: - If two loans were tied to the property (which is common these days), the second lender sometimes does not foreclose. If the second lender does not make up the back payments to the first lender and commence its own foreclosure proceedings, the second lender gets wiped out in the foreclosure. Many second mortgages make up 20% or more of original market value.
- The bank does not want to own homes. Since it did not receive its minimum bid on the courthouse steps during the foreclosure sale at the courthouse, the bank is likely to price that REO home for less which would be market value, just to get rid of it.
REO Listing Agents There are many places available online to find REO’s. You can find them on MLS or ask me and I’ll find them for you! Here is some information about REO listing agents: - Most REO listing agents list only REOs, no other type of property.
- REO listing agents make money by either selling a lot of REOs or operating as a dual agent. Under dual agency, the REO listing agent will earn both the listing commission and the buyer's agent's commission.
- To attract buyer's agents, many banks offer a larger percentage of the commission to the buyer's agent while discounting the listing agent's commission.
- REO listing agents generally represent the seller, not the buyer.
- Some REO listing agents are so busy that they hire assistants to field calls. Many do not give out their private cell phone number, which can make communication difficult.
Hiring a Buyer's Agent Unless you have direct experience negotiating with banks, I can help represent you in looking for and purchasing an REO. Since I have sold REO’s for banks and also have helped clients purchase REO’s, I have a unique insight on what banks want in regards to selling their REO’s. A few tips to keep in mind when you hire me as your agent: - I have a fiduciary responsibility to protect your interests.
- I do not represent the seller.
- I will be paid by the seller.
- I will ask you to sign a buyer's broker agreement, which will lay out my duties to you and specify who pays the commission.
- I have experience working with REO’s.
Negotiating with REOs If the listing is pretty new to the market, it’s possible that the bank will not deviate much from its asking price. You will have greater negotiating power if you make offers on homes that have been on the market for longer than 30 days. Here are more tips: - Banks negotiate bulk-rate discounts with title and escrow companies. If you elect to use the bank's title / escrow company, check the fees those companies will charge you. Generally, fees not paid by the bank but paid by the buyer will be higher because title and escrow often make up those discounts by charging buyers more.
- Many banks are moving away from paying typical closing costs for the buyer. Some fees such as transfer taxes, county and state fees, are borne by the buyer and not the bank. Banks do not often pay for pest reports, repairs or home warranty plans.
- Some banks will not sign a counter offer until all terms are mutually agreed upon between the parties verbally.
- Some banks supply the buyer with their own purchase contract and/or addendum to your standard purchase contract. We will sit down and go over it thoroughly so there are no questions or doubts about the Banks’ contract.
- You will likely be asked to buy the home "as is." For your own piece of mind, you should get a home inspection and make the offer “subject to” that inspection. Some sellers who lose their homes often strip assets from the homes or they are vandalized from being vacant.
- You might wait up to a week for a response to your offer from the bank. Be patient.
- The bank may ask for you to submit a loan application so it can prequalify you; however, you are not obligated to obtain your loan from that bank. We will submit a preapproval letter from your own lender before submitting an offer, and we’ll be assured by the lender that your financing will go through without running into unexpected delays.
- If you cannot close by the predetermined closing date, the bank may charge you a penalty for each day you pass that date.
If you're not excited about REOs yet, you should! Give me a call and let's sit down for 15 minutes so I can share with you all the exciting possibilities our current market has to offer. |