If you're a buyer in this current market you have a lot of things going for you. For starters, you have incredible selection, pricing we haven't seen for years, and historically low interest rates. Add to this list, a selection of foreclosure homes which are also known in the business as REO (Real Estate Owned) Homes.


So what should you know about buying a bank owned home? Quite a bit. Let's start with how they became a bank owned home. The easy answer is the homeowner didn't make their payments. The home owner may have been a victim of the subprime market, credit over extension, job loss and the like. The foreclosure process is often a lengthy one. If a family is not unable to make their mortgage payments, they most likely haven't been able to maintain the home or make repairs except for the bare minimum. When the homeowner sees foreclosure on the horizon, a last-place they will put money is in the house. That said, one can expect a home with deferred maintenance and sometimes many surprises. During the wintertime, these homes are cold and winterized making it more difficult to assess what the extent of the problems are.


So let's say you find a house that's right for you and it's bank owned. In many cases you're a first-time home buyer and may be unfamiliar with the process of buying a home from a regular homeowner. For the first time in a long time these attractive asking prices are putting homeownership in the reach of many that could not do so in the heated markets of the recent years.


Emotion plays a big part in many real estate transactions, and normally on both sides of the transaction. Our job as realtors is to stay unemotional and help our clients make sound decisions that are not emotionally driven. Sometimes this is easier said than done. But the fact of the matter is that buyers more often than not make an emotional connection with the home they want to buy. But here's one thing for sure, the asset manager for the bank handling the liquidation of the bank owned property is never ever emotional about the property.


Because today's daily news is rampant with negative stories about the housing market, lending market, and the number of foreclosed homes in the United States, everyone thinks that banks simply want to dump all of their homes in their inventory for any price. This couldn't be further from the truth. The tendency for most buyers is to lowball the bank. This is a mistake. My experience has shown that most banks will only give a modest discount from their asking price as they tend to price them aggressively. Their asking price for these bank owned homes is often below market value to begin with, yet despite advice against lowball offers I am asked to tender them anyway. In some cases my buyer loses the home to a more competitive bid. In other cases there were upset with a counter offer of only a $5000 price reduction from the asking price. They have difficulty getting their head around a price other than the unrealistic expectation they had in mind.


If one is able to come to terms with the lender on their bank owned home, there are other caveats at play. To begin with, there is a lengthy and legal bank addendum that is written in favor of the bank in just about every regard you can think of. They ask for a second deposit to be tendered upon acceptance instead of the customary 10 days post acceptance. They dictate a time is of the essence closing date, some with $100 a day penalties to the buyer for each day that passes after the possession date on the contract. Some lenders even try to insist that you use their attorneys to close, which I never allow to happen as every buyer is entitled to counsel that represents their interests alone.


If a lender requires certain repairs to a home before closing, it is more often than not the responsibility of the buyer to pay for and correct and not the seller. Many times inspections are for the education and information of the buyer and will have no impact for repairs paid for by the bank. The bank in most cases will only bear responsibility for mechanical structural failures is discovered during the inspection process. A buyer of a bank owned home can extricate himself from the contract and receive his earnest monies back in full in the event he is dissatisfied with the inspection, so you're not at risk there if the contract is properly constructed.


My advice to buyers is to tender their best and highest offer on bank owned homes because there are often other offers on the table that one is not aware of. FHA bank owned homes will actually disclose this to a prospective buyer in the form of a written notice an addendum, but it is not the case with other banks. They will at that time allow you to change the original offer to your best and highest in that case. Price, contingencies, credit rating, and amount of time needed to close are all considered in the decision making process.


A buyer must assess the projected selling price of the home and add in what costs will be incurred to make the necessary improvements one wants. At the end of the day does the net total makes sense when compared to a home on the market is being sold by regular homeowner? Only you can decide whether it's worth it or not.


Response times to offers can take an agonizingly long time. The listing agent for the bank has little control over when the asset manager will respond in any way shape or form. Some banks are faster than others. So you need to be patient.


I will end this blog entry with this statement: proceed with caution, remain as unemotional as you can, do your due diligence, and carefully weigh the cost benefit of buying a bank owned home. Make sure you choose a REALTOR® who understands how to navigate the bank owned home buying process as there's little room to make mistakes. Your hard earned deposit dollars could be at risk.