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.