How to Write the Best Offer on a Bank-Owned Home in a Buyer's Market

Bank-owned homes can often lead to excellent deals.

As a function of lending money for mortgages, banks often find themselves in possession of homes they have acquired through the foreclosure process. These homes, known as REOs (real estate owned), are generally considered to be a burden by the title-holding institution. As a result, the banks look to sell these homes as quickly as possible, while maximizing the sales value. Normally, banks prepare the REO property for sale and list with agents who specialize in the local residential market. Once contracted, these agents begin to market the property though normal sales channels. As a buyer, there are several techniques that can help you purchase these properties at a discount, even in a buyer's market.

Instructions

1. Clear the financial hurdles for the home purchase. As one of the first steps, it is imperative that you gain preapproval from the lender of choice. As banks look to sell REOs, they will always value a guaranteed sale with much greater value than a contingent sale. An offer that includes a preapproval letter will nearly always be accepted against a similar contingent offer, and in many circumstances, banks will actually accept the lower of competing offers, if your offer includes a preapproval.

2. Research the price "paid" by the bank. When banks foreclose, they actually bid against other potential buyers during the foreclosure sale. In doing so, they create a public record of the price they "paid" for the property. This purchase price will often provide potential REO buyers with a baseline price from which to work. With the knowledge of the bank's price, you can put together an educated offer that will allow the bank to unload the liability of the home, while providing a nice value to you. Zillow, Trulia and your local courthouse are all excellent resources for researching public records for real estate transactions.

3. Estimate the retail price of the property. Just as public records reveal the bank's purchase price, other sales prices of similar homes are published as a matter of public record. Research recent sales prices for homes in the area to determine an estimated value for any potential REO homes of interest. This protects you against overpaying, while giving you an understanding of how low the bank may be willing to go.

4. Analyze how much you are willing to pay for each potential property. Never assume that you will spend to the maximum of your preapproved loan amount. When looking for potential REO properties, review each listing as a discrete deal. Remember that while the purchase of a home can be emotionally charged, it is first and foremost a financial decision. In reviewing potential REO deals, always be mindful of the vagaries of each deal. Is the area of the REO appreciating, or at least stable? Does the deal provide enough upside for contingencies? Would you buy the property were it not an REO? Do not fall into the trap of assuming that because the property is an REO, it must be a good deal. Review the property as if it were being sold as a traditional listing.

Tips & Warnings

• Avoid emotional attachments to properties. Don't allow real estate agents to force you into higher offers using "other offers" as a reason to move higher.

References

• Zillow
• Trulia