Buying Bank Owned Properties (REO)

Consult A Las Vegas Bank Owned Property Specialist

So you’d like to buy a Las Vegas bank owned property?
You might have watched the late-night infomercials and you’re ready to do the bank “a favor” and take a problem off their hands. You even might expect to make “a killing” on the Las Vegas bank owned property in the process.  This all sounds great on paper, and if you do your homework it might just happen.  Here’s some facts you should be aware of.

REO vs. Foreclosure
An REO (Real Estate Owned) is a property that goes back to the mortgage company after an unsuccessful foreclosure auction. You see, most foreclosure auctions do not even result in bids these days because property prices have dropped so much, the opening bid is well above the current market price.  Usually the opening bid on foreclosures at the trustee sale is somewhere between what’s owed to the bank and what the last open market sale price was.  If there was enough equity in the property to satisfy the loan, why wouldn’t the owner have sold the property and paid off the bank?  That is why the property ended up at a foreclosure or trustee sale.

Foreclosure sales begin with a minimum bid that includes the loan balance, any accrued interest, plus attorney’s fees and any costs association with the foreclosure process. In order to bid on a bank owned property at a foreclosure auction, you must have a cashier’s check in your hand for the full amount of your bid.  If you offer the winning bid, you receive the property in “as is” condition, which may include someone still living in the property.  There may also be other liens against the property.  So it’s very important to do your homework before bidding on a foreclosed property.

Since what is owed to the bank for the outstanding loan is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale.  When this occurs the property “reverts” bank to the bank and becomes a “real estate owned” or REO, property.

REO Properties For Sale in Las Vegas
Now that the bank owns the property and the mortgage loan no longer exists, the bank will handle the eviction, if necessary, and may do some repairs.  They will also negotiate with the IRS for removal of tax liens and pay off any outstanding homeowner’s association dues.  As a purchaser of an REO property, the buyer will receive a title insurance policy and the opportunity to investigate the property.

When you are buying a bank owned property, it’s pretty much like buying from a private party in terms of the paperwork and the escrow process.  The one major difference is the disclosure process is pretty much non-existent.  Since the bank never lived in the property, they have no way of answering the bulk of the questions that are part of the normal disclosure process.

A bank owned property may or may not be a great bargain.  The most important factor in determining this is how many other buyers are interested in the REO property.  Do your homework before making an offer on a bank owned property and consult a Realtor who is very familiar with purchasing REOs and the area the home is in.  Make sure that the price you pay (if you’re successful) is comparable to other homes in the neighborhood that are similar.

Consider the costs of renovation, including time to complete them. Don’t get caught up in a ‘bidding war’ and pay over market value. It’s an old myth that “foreclosures” are a bargain.  Not all of them are.  Especially if they turn into a money pit once you take ownership.

How Banks Sell REO’s in Las Vegas
Each bank/lender works a little differently when listing their bank owned properties, but they all have similar goals.  They want to get the best price possible and have no interest in “dumping” real estate cheaply. Generally, banks have an entire department set up to manage their bank owned property inventory.

Once you make an offer to purchase a bank owned property, banks generally present a “counter-offer.” It may be at a higher price than you expect, but they have to demonstrate to investors, shareholders and auditors that they attempted to get the highest price possible. You should plan to counter the counter-offer.

Your offer or counter-offer will probably have to be reviewed and approved by several individuals and companies. Even once an offer is accepted, the bank may insert wording like “..subject to corporate approval with 5 days.”

See our article about Tips on How To Write Your REO Offer.

Property Condition

Banks always want to sell a property in “as is” condition. Most will provide a Section 1 pest certification, but not unless you include it in your offer and negotiate the point. They will allow you to get all the inspections you want (at your expense), but they may not agree to do any repairs.

Your offer should include an inspection contingency period that allows you to terminate the sale if the inspections reveal unanticipated damages that the bank will not correct.

Even though you agreed to “as is,” always give the bank another opportunity to make repairs or give you a credit after you’ve completed your inspections. Sometimes they’ll re-negotiate to save the transaction instead of putting the property back on the market, but don’t take it for granted.

Making an Offer
Before making an offer, have your agent contact the the listing agent and ask the following:

* Are there any inspection reports?
* What work has the bank agreed to?
* Is there a special “as is” form?
* How long does it take the bank to accept an offer?
* How does your agent deliver the offer?

Offers are usually FAXED to the bank. There is no formal presentation. Keep in mind: nothing happens evenings and weekends (banks are closed).

Since there is no face-to-face presentation to the bank, provide the listing agent with a pre-qualification or better yet, a pre-approval letter and buyer biography. Make your offer easy to accept.

Hopefully these tips will manage your expectations. Remember that REO’s sell at pretty close to full market value and are not the deals presented on late night television.