Buying REO Properties

[Ted Klein]

I have searched the forums and there are a number of threads on buying REO's but I didn't find the answers I was looking for, so...

There is a property that was on the auction that went back to the bank as an REO property. What are the steps now that would need to be taken to purchase this property from the bank? Does the bank sale the property for the outstanding balance or for FMV? Do I need to work with a REO broker to make an offer or will any agent be able to present my offer? Is there anything that would help in getting my offer accepted?
Dealing with foreclosures and REO properties is new to me so any help you could provide would be greatly appreciated.

Thanks, Ted

[Ann Watkins]

Hi Ted,

I would recommend you using a Realtor. I perform BPOs (Broker Price Opinions) for banks on REO properties and can answer some of your concerns.

My job is to let the bank's Asset Manager know the current condition of the property, market conditions of the area, specifically any deferred maintenance or repairs necessary that would affect the subject property's value. So yes, properties get listed at FMV less necessary repairs.

At some point I may be awarded the listing. It goes without saying that my initial values are part of what determines if I'm successful in selling the property. as well as if I get more listings.

On the other side of the fence is me representing a client who is the buyer. It's critical you use a Realtor who has experience with REOs. If it's a HUD property your Realtor has to be a registered HUD agent via their brokerage to even place your bid.

That's just a minor requirement. Being versed in how to write your offer to ensure you are a successful bidder is also very important.

But more than any of that is knowing how to protect your Earnest Money (EM). Most REOs will ask for a higher EM deposit for a cash offer.

Banks know investors take the shot gun approach and will make low bid offers on many properties hoping to get at least one. This not only ties up the Asset Manager's and banks time but also can be a major waste of a Realtor's time, when the investor walks on the bids they decide they don't want.

So with that, you may be having to put down as much as 5% EM and if it's a multi-family or commercial listing having to agree to let the EM go hard (meaning you waive an inspection period) so you could wind up losing your funds if you or your Realtor don't know what their doing.

I always tell my clients if we are showing a HUD or other REO have your inspector or GC available to walk the property that day. With some REOs if you're a non-owner occupant your option period is only for you to get out of the contract, but they will not refund any EM deposits.

Also, when picking your inspector or GC make sure they know how to cost repairs in a home that's been winterized (water lines and gas lines capped) or electrical utilities are off.

This may mean bringing an air compressor to pressure test lines and a generator to check mechanicals. I see more and more properties going on the market with disclaimers "utilities will not be turned on for inspections). You don't want to find out your great deal is a money pit.

So I've said all that to say yes you can bid without a Realtor but there are a lot of issues you could overlook that could wind up costing you money.

Hope this helps!