So, you want to buy a foreclosure…
Last week, we talked about foreclosures and determined that there are three stages to the process: pre-foreclosure, foreclosure, and post-foreclosure.
In my experience, what most people mean by ‘foreclosure’ is post-foreclosure, a.k.a. REO’s, a.k.a. bank-owned properties. These are homes that have already been foreclosed and now the bank has them on the market to sell. There are certainly great opportunities for home buyers and investors in all three stages, but the first two (broad statement here) generally require a bit more savvy or a bit more help, for reasons we’ll return to in another issue. So we’ll start with the most widely-used definition of ‘foreclosure’.
Post-foreclosures, or REO (Real Estate Owned) properties, look like normal listings on the market (for our purposes now, we’re going to assume the properties are listed). The key difference is that the seller is now a bank (not the friendly folks you know from the dry cleaner), and banks do things differently than most sellers.
A couple of things to consider with bank-owned properties:
- REO’s are not automatic bargains (a very common misconception). As a matter-of-fact, they most likely are not.
- Bank-owned properties are typically sold in ‘as is’ condition, meaning the bank will not do any repairs. Yes, you’ll have to pay for the repair if you buy the house, and hopefully this will be accounted for in the final sale price. But more importantly for most folks, if you’re trying to use financing, big issues with the house’s condition can make it unfinanceable or, at the least, much more difficult to finance. The more difficult to finance, the higher the interest and the higher the down payment, typically.
- Banks (again, contrary to public opinion) do not want to own properties – they do not like to foreclose because bank’s deal in money, not property. But banks are also big institutions and, as such, move slowly. So, when dealing with a bank, understand that you have a motivated seller but a seller who is not motivated by time. Decisions on their end can take a long time. They expect you to move along quicker than they.
- Banks often have additional and/or special requirements. This may be extra paperwork. Banks will also often counter back, so be expecting more time for this process.
Robert Thompson, [email protected] (503) 729-9477
Lic’d OR Principal Broker, Lic’d WA Broker, Keller Williams Realty Portland Premiere, each office independently owned and operated.