Property Conditions Of An REO
With the current glut of homes available for sale these days, the pickings can be great. Foreclosures and bank-owned properties are abundant and, with the help of a real estate professional who is skilled in the REO market, you can likely find a great buy. Having said that, there are a few things that are peculiar to buying in such a market, and when it comes to purchasing a distressed property from a bank, the hoops can be pretty challenging.
Proper Inspection Is Imperative
There are several considerations to be made before you make your offer on the property. First, of course, is the fact that the property needs to be inspected thoroughly by a licensed home inspector. When a house is foreclosed upon, the people living there go through a whole range of emotions, most of them negative. Losing your home is not high on the "things I love to do" list. As a result, the property may be let go, or even damaged as frustrated homeowners are forced out of their abode. The cost of repairs to a distressed home can be astronomical. That's why it is vitally important you have the house inspected and get an estimate of the cost of repairs before you put in your offer. Sometimes some of the repairs will be made by the bank before the sale, but that's not what you want to count on. Count on the fact that money will have to be spent to fix things, and you'll likely have to shell out for that cost.
Estimate The Cost Of Repairs And Repayments
The next thing you have to do, after you've had the house inspected and an estimate for the cost of repairs, is to have the title searched. As with any house purchase, a title search is part and parcel of the exercise. You need to check for outstanding taxes and liens against the property. Since there is no disclosure statement by the "owners", you will have to hire a title company to run a full, insured title search before closing the deal. The common reason properties are foreclosed upon is because the occupants are unable to maintain the payments. As a result, there may be liens against the property for unpaid loans where the property was used for collateral. Unpaid taxes, mechanics liens, and the like remain on the property until they are paid. That means that when you buy the property, you get to pay off the liens against it, even though the money owed was not your encumbrance. Assume nothing. The bank should clear the title before the sale is made, but that may not be the case. Have the title searched before you buy.
Don't Be Afraid To Negotiate
When you are buying an REO you have several opportunities to negotiate in a variety of areas. Prepare yourself to negotiate a lower down payment, lower interest rates, a reduced asking price and reductions in some of the closing costs. In order to unload a property, a lender may be more than happy to deal with you and go for the lower closing costs and interest rates. Some lenders might surprise you with their willingness to finance the property at below-market rates and will gladly take a rock-bottom down payment. This is not the time to be hesitant. Ask for what you want. A better price and affordable terms may be yours for the asking.
Don't be afraid to negotiate on the asking price of the property, either. Even though the bank wants to sell the property, remember they are, after all, a bank. They are not going to be sold short if they can help it. Even with that knowledge, a bank may be happy to negotiate a lower price, especially if the place needs a lot of repair. Just be sure you are able to present a well-written case for your low ball offer. Photos along with repair estimates are a great way to add emphasis. Who knows, the bank might go for it.
