These days, more and more folks are buying bank-owned properties (also known as REOs, short for “real-estate owned”). These are properties that have been foreclosed upon because the owner ceased to pay their mortgage. If, at the end of that foreclosure process, the property fails to sell at auction, it reverts back to the bank and becomes an REO.
Search for bank-owned properties here.
Often, REOs are priced below market value. There’s a reason — and it isn’t because the bank wants to dump the property ASAP, no matter the cost. The age and condition of the house, the cost of maintaining the property, the location of the property, the proximity to other distressed properties, the overall real estate market in that community and the number of distressed properties in that market all factor into the pricing of an REO. Add to that each bank’s individual financial goals, and you begin to see the variables at play here.
And, yes, bank-owned properties often sound like a good deal — and they can be. However, buying a bank-owned home is not something to be done if you don’t understand the process.
In Central Oregon, like much of the country, distressed-property inventory (REOs and shorts sales) account for a good chunk of the entry-level market. In Bend, for example, of the 209 Active Residential Single-family-residence listings under $200,000 in January 2010, 97 listings (46 percent) were short sales and 40 (19 percent) were bank-owned properties. In total, 65 percent of available homes under $200,000 were distressed.
That means there’s a good chance that if you’re a first-time home buyer in Central Oregon, you’ll consider buying a bank-owned property. This is where your inexperience can really hurt you. Not only does a first-time home buyer not know the right questions to ask (and believe me before you purchase a bank-owned property, there will be plenty of questions that need answering), but you may not know there are questions to ask.
And even if you have purchased a home (or homes) before, if you aren’t familiar with how a bank-owned property sale works, you may be in for an unpleasant surprise — and it may not come today or at closing but months or even years down the road.
Because when it comes to bank-owned property, there are typically many, many questions that need answering. Even the most basic premise –- for example, that the seller of the property holds title to it -– cannot be assumed as fact.
When banks are participants in real estate sales, the game is played very differently. For one, we are all forced to play by their rules, whether those rules make sense or not (and you better believe those rules are designed to benefit the bank, not the buyer). For example, when a bank is involved the selling a property, the contract you will be required to sign will, in all likelihood, be provided by the bank and written so as to indemnify the seller (i.e., the bank) of every imaginable liability while penalizing the buyer (you) for any number of perceived shortcomings. The listing agent of a foreclosure property may not have ever set foot on that property and may have no knowledge of any material damage to the home or the property itself since the bank is exempt from completing the seller’s property disclosure.
The list goes on.
Consequently, oftentimes the purchase of a distressed property is no walk in the park . Yes, the process can be immensely rewarding (there are still some great deals out there), not to mention extremely satisfying (remaining persistent in the face of a tough challenge can be very empowering). But for a buyer to try to pursue the purchase of a distressed property without fully grasping what they’re undertaking is fool-hardy. (Here’s why a home inspection is essential when purchasing a bank-owned property).
So, please, before you head down that road, make a conscious decision to do so. Then, if you’re up to the challenge, do your homework:
- Educate yourself (there’s a wealth of information on the subject)
- Find an educated REALTOR® familiar with distressed-property sales
- Hire a trustworthy, thorough home inspector
- Learn everything you can about that property and its history from anyone who might know anything (even if it means interviewing neighbors, who can provide invaluable insights).
Then, once your offer has been made, please, please, be patient (this is definitely one instance where it’s not only a virtue, it’s a necessity). Make sure you understand EVERYTHING a bank requires you to sign. Ensure that all your financial ducks are in a row, and don’t miss any deadlines.
Finally, when all is said and done, and you’ve been handed the keys to your new home, congratulate yourself on making the most of this market’s rare opportunity!
And if I can help you in your search, don’t hesitate to contact me.
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