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Lansdale Real Estate Blog

Buying a Bank Owned Home

There are several different types of distressed properties that buyers should be aware of. They include Short Sales, Sheriff Sales, Estate Sales, and Bank Owned Properties.

Bank Owned Properties (commonly referred to as "REOs" or Real Estate Owned) are exactly what they sound like they would be--homes owned by banks.

The last step of the foreclosure process is a public sale of the home at the county courthouse. This is known as a sheriff's sale. In most cases the lender that is foreclosing on the borrower will take possession of the property.

After taking possession, the bank has any personal property left by the previous owners removed from the property, orders an appraisal to determine the value, and hires a local real estate agent to list the property for sale.

Generally, bank owned / REO properties are priced somewhat lower what than a traditional property would be because the banks would prefer to sell the homes quickly. From the time of taking possession of the home and reselling it, the bank has carrying costs which include taxes, maintenance, and utilities which they would like to minimize. This presents some leverage for buyers trying to negotiate a lower than asking purchase price.

Buying a bank owned / REO property is a lot safer than purchasing a home directly from a sheriff sale. With bank owned properties, buyers will get the home free of any liens and with clear title just like they would with a traditional sale.

The downside is most banks have a mandatory addendum that must be attached to any agreement of sale for the property. These addenda usually include provisions that the house be sold "as-is". In other words, a prospective buyer can have a home inspection performed, but as a result of the inspection, they can either take it or leave it--there is no negotiating repairs, credits, or a reduced price after the agreement of sale is accepted.

Often, bank owned / REO properties will be "winterized". This means the water to the home has been shut off and pipes drained to prevent water damage in cold weather. If a buyer wishes to perform an inspection on the plumbing system, they will be responsible to "de-winterizing" and then "re-winterizing" the home.

In some cases, the bank will also require buyers to pay the full amount of transfer tax or other closing costs traditionally paid by sellers including tax certifications or use and occupancy inspections.

Since they are listed with real estate agents, bank Owned / REO properties are available on the MLS (multiple listing service) just as traditional properties are. Most of the time, there isn't any identifying criteria to differentiate them from a normal sale, so be sure to ask your agent to point them out for you. Since they are on the MLS, there isn't any reason to sign up with a website or pay for any special "bank owned property lists".

If the repairs needed to the home are within your comfort level and you have a strong real estate agent to negotiate the price, bank owned / REO properties can present a great opportunity.

Neighborhood Spotlight: Gwynedale

Gwynedale is a community located in Upper Gwynedd Township that was built in the late 1980s / early 1990s. The development consists of 178 townhomes that have 3 bedrooms, 2 ½ bathrooms, a full basement and a 1 car garage.

View Gwynedale in a larger map

There is a homeowners association that maintains the common areas, which include tennis courts. The association fee assessed to homeowners is $700/year and that covers the common area maintenance as well as lawn care and snow removal.

At the time that this article was written, there was 1 home listed for sale in Gwynedale.

The following is a brief history of sales in Gwynedale:

Year	Homes Sold	Median Price
2010*	7	$289,900
2009	8	$292,000
2008	17	$290,000
2007	15	$305,000
2006	15	$310,000

*2010 data inclusive up until today's date only. All sales data obtained from TrendMLS and may not include private sales or title tranfers.

Neighborhood Spotlight: Charter Oaks

Charter Oaks is a community located in Upper Gywnedd Township that was built in the mid 1990s. The development consists of 42 single family homes that mostly have 4 bedrooms, 2 ½ bathrooms, a full basement and a 2 car garage.

View Charter Oaks in a larger map

At the time that this article was written, there were no homes listed for sale in Charter Oaks.

The following is a brief history of sales in Charter Oaks:

Year	Homes Sold	Median Price
2010*	0	$ -
2009	2	$482,500
2008	0	$ -
2007	0	$ -
2006	1	$750,000

*2010 data inclusive up until today's date only. All sales data obtained from TrendMLS and may not include private sales or title tranfers.

Mortgage Rate Update

This week's survey of lenders performed by Bankrate.com shows the national average for a 30 year fixed rate mortgage has fallen to 4.92% from 4.96% last week. The mortgages in the survey had an average of 0.42 discount and origination points. Last year at this time, the average rate was 5.45% and a month ago it was 5.21%

Neighborhood Spotlight: Stonegate

Stonegate is a community located in Upper Gywnedd Township that was built in the mid 1990s. The development consists of 188 townhomes that each have 3 bedrooms, 2 ½ bathrooms, a full basement and a 1 car garage.

View Stonegate in a larger map

The community has a home owners association that oversees the management of the common areas in the neighborhood which includes open space, tennis courts, and a children's playground. The association assesses a fee of $179/quarter to residents for the common area maintenance that also includes trash service.

There are currently 5 homes for sale in Stonegate, and they range in asking price from $264,900 to $294,900.

The following is a brief history of sales in Stonegate:

Year	Homes Sold	Median Price
2010*	6	$268,500
2009	7	$250,000
2008	17	$271,000
2007	15	$273,000
2006	20	$274,950

*2010 data inclusive up until today's date only. All sales data obtained from TrendMLS and may not include private sales or title tranfers.

Creative Ways of Marketing Your Home: Seller Incentives

With inventory on the rise and the expiration of the homebuyer tax credit, sellers will have to be increasingly creative in coming up with ways to differentiate their home from the competition.

It's true that you can sell anything at the right price, but sometimes just lowering the asking price isn't necessarily the best tactic.

Imagine for a moment you have your Gywnedale townhome for sale and there are 5 other listings for sale in the neighborhood located in Upper Gywnedd Township just outside of Lansdale. All of the homes are fairly similar to yours- 3 bedrooms, 2 ½ baths, 1 car garage – and they're all asking between $310k and $315k – right in line with your price of $310k.

The comparables (homes in the neighborhood that have recently sold) are telling you that your asking price is in the ballpark of where it should be, but there just isn't that much activity.

One option would be to lower your asking price, perhaps to the $300k for your current price of $310k. At that price your home would be a steal compared to the other homes for sale in the neighborhood and would most likely get an offer before any of the other listings.

The other option is to get creative-- Offer an incentive to a buyer that creates a higher perception of value than what a simple price reduction would.

For example, you could advertise that with an acceptable agreement you'll buy a discount point to lower the buyer's interest rate or pay for the buyer's first year of property taxes and association fees.

In reality you're giving up a lot less than you would have with a $10,000 price reduction, but most buyers won't see it that way. Buyers will look at these incentives and think, "wow, I'm getting something for free with this house, I can't pass up this opportunity!" They won't even consider the actual value of the incentive.

Another good idea is to attach a deadline to be eligible for the incentive. Something like "for acceptable offers received by (30 days from now), seller will…" is fairly successful in planting a sense of urgency upon potential buyers.

It's important to remember that for incentives to be effective, that home has to be properly positioned in the market to begin with. A buyer won't care if you're giving them a free year's worth of taxes if your home is priced $25k above the competition.

Homes that are listed in the bottom third of the price range and are in the top third of condition amongst the competition are selling the quickest, but adding an incentive to a buyer can get you to the settlement table faster and with more money than the typical price reduction.