If you’re looking for a great deal—and who isn’t?—consider an REO home. REO stands for Real Estate Owned. These are houses that lenders have foreclosed and that are now owned by banks. An REO is the safest way to buy a foreclosed property.
Procedures and policies vary, so you will need to follow instructions to the letter. Banks and lenders don’t really want to hold property. They want to get as much out of the property as possible, as quickly as possible.
There’s one catch. The property is sold “as is” and may have sustained quite a bit of damage, either because the owner couldn’t afford to keep up maintenance or was disgruntled, or because the house has been sitting empty. Expect to have to pay for repairs. Do your best to get an inspection of the house before you make an offer.
Don’t bother making a low-ball offer. Most banks will reject it out of hand. If you can’t come up with the asking price, find a home you can afford. Also don’t make a contingent offer. If you have to sell your house first, do that before making an offer.
Before writing an offer, find out as much information about the property as possible. If working through a real estate agent, you can ask the agent. You want to know how long the property has been on the market, and whether there are any offers on it. If so, will the seller accept a back-up offer? How does the seller handle multiple offers? Also find out what the response time will be, and what needs to be submitted with the offer (pre-qualification letter, proof of funds, etc.)
Make a cash offer
Cash offers get more attention because the bank doesn’t have to wait for a mortgage company to set up the closing. Offering less money but making a cash offer can help your bid to get attention. Accompany the offer with a letter from your bank stating that you have available funds equal to or greater than the amount of the offer.
Keep time frames short
The bank wants to turn the property around as quickly as possible. Keep the time frame for inspections as short as possible, 17 days or less.
Give the listing agent both sides of the commission
This will not cost you extra, but will get the agent to work extra hard to get your offer accepted.
Offer a large earnest money deposit
If the offer isn’t accepted, you get your money back. At least 2% of the sale price money should be deposited. To really get the bank’s attention, offer $5,000 in earnest money. This says you are very serious about purchasing this particular house.
Include SASE with the offer and earnest money check so the bank can conveniently send back your check if your offer is rejected.
Ask for a quick closing
While the bank will probably need a month to bring the closing to the table, you can offer a quicker closing of less than a month. This is likely to garner attention for your offer.
Banks get appraisals and expect the property to sell at or near the appraised value. Asset managers are hired to move the properties. An asset manager’s job is to sell the property at fair market value or higher within 60-90 days.
While an REO may be a good buy, many factors go into closing the deal. Make it as easy as possible for the bank to see you as a serious buyer, and you will increase your chances of a positive response.
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