First, what is a bank owned property? Bank owned properties are also known as REO ’s.  REO stands for “real estate owned.”  Banks have “REO Departments” to manage their real estate. Bank owned properties have been taken back from the homeowners in a foreclosure action.

Buying a short sale or a foreclosure? There are some advantages to buying a short sale.  The biggest is that you should receive full disclosure from the seller.  The seller in a short sale is required to complete all the typical and required disclosures.  A bank does not have to adhere to those same rules.  The bank typically just has to provide statutorily required documents i.e. lead based paint, smoke detector and water heater compliance, etc.  They do have to disclose what they know, but often that is little to nothing.  They’ve never lived in the house, so remember, you need to be extra diligent in buying a house with no history relayed.  Another advantage of buying short sale over a foreclosure might be that in a short sale, the homeowners are frequently still living in, and taking care of, the home. 

There is extra waiting involved.  Yes, a bank has its own process, and its own ‘red tape’.  Currently, many banks need up to 10 days or 2 weeks to respond to your offer.  They may come back with a counter offer, or they may accept, but almost always they will have their own addendums and attachments. You MUST read and understand these.

Everything is negotiable. The bank may play hard ball up front with lots of language denoting ‘as-is’ sale only, etc. etc.  But you have to remember, it is all a negotiation.  They want the house sold.  What can you do to make it attractive for the bank to make some repairs for you, or to pay some closing costs for you?  Have a skilled agent on your side. Its very important to know what to fight for.  

Get your loan approved and ready to go.  Even a bank, and maybe especially the bank, is going to scrutinize your ability to perform on the contract you’ve written.  Many banks will require you are pre-approved with them too.  It doesn’t mean you have to use them, but they may want you to get approved by running your credit and completing a quick application. 

Remember, this is not a “person.”  Yes, there is a person at the other end of the contract, but its an employee.  You likely won’t be able to appeal to any emotion, nor even reason.  Its all business, its a contract, and you have to think of it a little differently than you would a regular sale with a seller sitting at his kitchen table. 

Inspect! Inspect! Many bank owned properties are in disrepair.  Sometimes it is due to poor homeowner maintenance during the foreclosure process.  It can take MONTHS to foreclosure on a property and in the meantime, if the homeowner has no money to make payments, they often are not maintaining the property either.  Then, it can take weeks or months to assign the property out to an agent and get it listed for sale.  It could be vacant for quite a while before you even see it.  BE SURE to get a qualified and competent inspector to look out for your best interests.  Inspections may include: home, chimney, fireplace, foundation, structural, roof, drainage, swimming pool, spa, etc.  Ask your agent for trusted referrals.  Remember, banks often won’t provide you any inspections. You may have to pay out of pocket -but its a small price to pay.  (oh and be sure you know who’s responsible for assuring utilities are on at the house!)

BEWARE!  Beware of auctions.  Beware of the get rich quick schemes.  Now is not the time for flipping properties in most areas.  You need to have expert counsel if you are considering property flipping in the short term, or buying a home yourself at auction. Check out a post about this very topic on my other blog: Better Know What You’re Doing  Don’t get wrapped up in the public auctions held at hotels, etc.  KNOW the areas you are interested in buying, research and know what the high price SHOULD be. 

So are you ready to explore investing in a foreclosure? Its an exploding market now, and there are bank owned properties for sale in every town in Contra Costa.  If you’re ready to go, contact me, I’m happy to get you set with a local lender to get you pre-approved and begin your journey to homeownership.