There is no doubt about it - you can get a great deal by buying an REO property!  But that’s not always the case so you have to do your homework before you write an offer on a bank owned home.

 What’s an REO?

REO stands for “Real Estate Owned,” as in owned by the mortgage holder.  It’s the industry abbreviation for a house that’s been foreclosed by the lender.

 Is it a bargain?

Most of the time, YES!!!  While the bank wants to break even whenever possible, in a declining market such as the one we’re in now often that’s not possible.  They just want to sell the home as quickly as possible and cut their losses.  This means they list the property at a price below Fair Market Value so you’re already getting a great price.

This does not mean you can write an offer for $20,000 below their asking price and expect them to jump for joy when they receive your offer.  If you want the bank to take your offer seriously, write a serious offer.

Ready to make an offer?

Here’s what you need to know about making an offer on an REO:

1.  They are sold As Is.  You can always ask the bank to make repairs but don’t assume that they will - in fact, assume they won’t.  You can inspect the house as much as you like and if you find something horribly wrong you can cancel the sale.  For instance, you are not obligated to buy a house with $50,000 worth of foundation damage if you cancel during the inspection period. 

2.  Contracts CANNOT be assignable.  Investors, this is important if you think you're going to purchase an option to buy the property and sell it to someone else before the close of escrow.  They won't allow it.

3.  The bank will have their own addendum to go along with the purchase contract.  Read it carefully to make sure you agree to their terms.  They usually will not pay for a home warranty or any inspections.

4.  If you are getting a loan you MUST MUST MUST include a pre-approval letter with your offer.  No exceptions.  If paying cash you must provide proof that you have the funds available to buy the property.

Note:  some banks require you to get pre-approved by them as well.  So if bank ABC is the seller and your loan will be through credit union XYZ, you will still have to get a pre-approval from the seller.  They do not require that you obtain your loan through them.  They just want to know firsthand that you are credit-worthy. Nothing is worse than accepting an offer, taking the house off the market for a month, and finding out that the buyer can't get a loan because his FICO score was borderline.

5.  REO sales are exempt from providing the California Transfer Disclosure Statement (TDS.)  Since the seller has never even seen the house, they certainly can’t tell you if the roof leaks during a rainstorm or if planes fly overhead every 15 minutes.  You will have every opportunity to inspect the house and pay for any inspections you feel are necessary.  I strongly recommend that you get a whole home inspection for around $350-400 any time you buy a home, whether it’s an REO or not. 

6.  When you write your offer, please allow extra time for a response.  A week is usually plenty and you can often get a response in a couple of days, but every bank is different.  Err on the side of caution.  If multiple offers are received the bank may ask us to ask all buyers to submit their Best and Final Offer.

7.  All initial deposits (earnest money) should be at least $1000 minimum.  Earnest money checks are not cashed until we have an accepted offer.

8.  Many banks will not allow any cash credit to the buyer for closing costs or repairs, but many will gladly pay your closing costs if your offer is strong.  Be sure to ask when planning to write an offer if want cash for closing or repairs.

Ready to get started?  I'm the ONLY Certified REO Specialist (CREO) with the National Association of REO Brokers in Solano County.  I have years of experience selling bank owned properties and I'd be delighted to assist you too!