How to Buy Bank Owned Properties

Glen Gallucci
July 12, 2008 — 1,815 views  
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There is an abundance of "Bank Owned" property, (Otherwise known as an REO's). By understanding the process in making offers on REO's, you will reduce the stress on everyone involved and greatly increase your odds of completing a successful transaction. The Listing Agent (REO Broker) is simply a conduit between the Buyer's agent (if your using a real estate agent) or you and the Seller. An important thing to remember is that the Listing Agent does not have any authority, power or say as to what the terms of the sale would be and has little or no negotiating power or influence.

I would avoid writing significantly low or questionable offers just to make an offer. I understand every buyer's desire to get a "Super Deal". When making low offers, you must document why the Seller (Bank) should take significantly less than the asking price, or don't bother making the offer. Remember the Seller has at least two different Broker Price Opinions (BPOs). But in this quick changing market, you have an excellent chance to show why the price should be much lower than the asking price.

When making offers to the bank, I would suggest including proof of funds. Don't wait for the bank to require it. Just send it with your offer. It could be in the form of a pre-approval letter from your mortgage company, or better yet, if it's a cash deal, send them proof you have the funds. You can send a bank statement of the balance showing at least the offer amount. Also, you can show a letter from your hard money lender or private investor saying you are credit approved for the purchase amount and the funds are available immediately. Deposit checks should be made payable to the listing broker

Also remember Bank owned properties are exempt from Disclosure/Disclaimer laws. There is no previous owner to tell us how old the roof is, or if everything is working properly. And as a result you have NO information specific to the property you are interested in, nor does the bank. You must do your own homework which includes an inspection of the property. The bank will only give you clear title.

How soon will the Seller respond? Listing agents have no control over the bank's decision-making process. On rare occasions they will respond in the first 48 hours. However, more than likely they will respond in 3 to 5 days. Please be patient and do not call the listing agent to check on progress. The listing agent will notify you immediately when they get a response. If this is a newly listed property, some banks do not even look at offers until the property has been on the market for 5 to 10 days. You must have a little patience as they are working towards the common goal of closing on the subject property. There have been occasions when a counter has taken well over a week. The Asset Manager is dealing with 100's of properties, and they receive about 20 offers in a day on properties and it takes some time to go through them.

Don't try to contact the bank. All correspondence should be made through the listing agent. The listing agent should eventually become your new business associate to help make future deals. This newly found relationship will help you and the listing agent make money.

How much time does it take to close a deal? Generally you will have 30 to 45 days from mutual acceptance to close the transaction. Often the proposed closing date on the original offer is unrealistic due to the lengthy negotiation and acceptance process with the REO departments. The Asset Manager knows that you can't close in ten days (unless your offer is cash). They are not here to work against you. Asset managers know that appraisals, inspections and the loan process take time. They will assume that you have taken the time prior to making an offer to become pre-approved for the loan and that there will be no trivial delays beyond the 30 to 45 day closing period.

Cash offers do add a slight edge in negotiations. But remember, you should show them why they should accept a lower price than they are asking. If the house needs work, you must put emphasis on that as to negotiate a lower offer.

And remember, if you put in a low offer and it's not accepted, you can put in another offer two or three weeks later slightly higher. Then again in another two or three weeks.

I feel having a good REO broker working with you, your chances of landing more deals will increase. Everyone wants to make money and the bank wants to sell unwanted properties. They have thousands of houses! Every one of them! Not hundreds, but thousands!

I've recently partnered on 3 deals which my associate (who just buys REO's) got houses from 125K to 175K needing on the low side, 10K in cosmetic work (paint, carpet, doors appliances) to a high of 30K (kitchen, bath, paint, carpet, doors, basement). Two are under contract for 340K and 365K closing this month and the third will be 340K as well. All two families. They were all listed about 50K higher, but he worked with his listing agent and put the offers in two to three times and got the deals.

So this may be an avenue for both wholesalers and rehabbers to explore while slugging through this uncertain market. I understand the concern about buying houses in this market, but look at the profit spreads in the above examples. There is plenty of room to sell at a bargain price if necessary.

This goes back to what I've always said. If you buy at the right price (your price) and don't have too thin of a profit margin, you can always sell at a much reduced price to make it attractive for anyone to buy it.

I hope this helps give you a little insight on how to invest in this down market. Houses are selling, at the right price. We are working a very profitable short sale where if accepted we can offer the house for 40k under the last sale. I just got word this morning that there were 19 showings on the property. Count them, 19! That's unheard of in this market. The first offer was at asking price, and the second offer was 10k less but get this...the offer is for all cash! It's a retail buyer who knows a good deal. All we did was to make our offer to the bank low enough so we can offer the house at a bargain price.

And it worked!

Glen Gallucci


Glen Gallucci, also known as "A Seasoned Investor" actively buys, rehabs and sells residential properties. He has invested, renovated and built numerous residential and commercial projects during his 30-year career. A well diversified businessman; Glen is also engaged in real estate education. From the trenches, and with his down to earth "tell it like it is" teaching style, makes Glen the "real deal" and a sought after speaker around the country as his business experience proves invaluable for the beginner as well as the seasoned investor regarding the successful structure of starting a wholesale or rehabbing business as well as securing private lenders when investing in "quick turn real estate."