Wednesday, January 6, 2010

Bank Owned Properties

As mentioned in prior entries, REO (Real Estate Owned), bank owned and lender owned are all interchangeable terms which simply mean that the bank/lender owns the real estate. These properties present a tremendous opportunity for buyers, but are also fraught with uncertainty.

As opposed to short sales and auctions, lender owned properties' prices are certain, as they have been set by the lender. Therefore, although a property may sell above asking price, you can be fairly certain that, so long as no one is bidding against you, the lender will accept a full price offer with reasonable terms. Moreover, lenders generally price properties reasonably from the start, and periodically reduce prices as time goes on.

Remember that the lender is not emotionally involved and has no interest in being in the business of selling homes. Also keep in mind that the lender is looking for a quick closing, so the sooner the closing date, the better in any offer. (In some instances, lenders will offer incentives if you finance through them.) Although the opportunity to close quickly on these distressed homes at a bargain price is appealing, there are issues to consider with the process, due diligence and disclosure.

Each lender instructs the listing broker on how to proceed in selling the proprty. The lender will generally demand that the parties follow their procedure and that no changes be made to their documents. Therefore, contingencies are limited. Although you are generally allowed a home inspection, these homes are often in disrepair and/or winterized, so the inspection may be of limited value. As the lenders know very little about these properties, they will be sold "as is" with no warranties and/or representations.

In short, as a general rule, lender owned properties are "fixer uppers" and best suited for savvy investors, or home buyers with some construction background, intending to build "sweat equity." Most lender owned properties have been foreclosed on. That being said, a disgruntled (and financially troubled) homeowner has lost this property to the lender. The homeowner often destroys the home and strips it of fixtures and materials prior to being evicted, so be sure you know what you are getting into prior to buying a bank owned property. With that said, if you are the right type of buyer and conduct your due diligence, lender owned properties can be extremely rewarding investments.

As always, feel free to contact me via email to john@jw-realestate.com or via cell (978-423-9309).