Buying Foreclosed or REO Properties: What You Should Know
In our current Southeast Michigan market, REO properties and foreclosures are still available to purchase, although we’re not seeing the same volume as a few years ago. REO sales could include HUD properties, Freddie Mac/Homesteps, Fannie Mae/Homepath, and other lender-owned properties.
When buying foreclosed, foreclosures, bank-owned, HUD, Fannie or Freddie properties, buyers should know more about the seller. Not the actual bank’s name because it really doesn’t matter which bank currently owns the home. Their goals and methods are all the same – sell the asset as quickly and for as much money as possible, with as little emotion as possible.
First, the term REO stands for ‘Real Estate Owned,’ a term banks use for homes used as to secure a mortgage that defaulted, resulting in the ownership of the property to revert to the mortgage holder. The home is an asset, but as long as the bank holds the title the property is costing the bank more money. The bank is now responsible for property taxes and maintenance, and making sure the home does not lose its value through vandalism, neglect, theft, etc. The bank wants to get rid of the house quickly, but on the other hand is going to try to get the most money for their asset as they can (i.e., they are generally not going to give the property away).
The banks employ asset managers, who hire real estate brokers to list and sell the homes. The asset manager’s job is to determine the home’s listed price, consider and accept an offer, and get the transaction to the closing table as quickly as possible.
When determining the listed price, the asset manager takes the home’s current market value and then adjusts the price to reflect the home’s condition or need for repairs. The asset manager also agrees to any price drops or changes in the listing when necessary.
These homes are being sold as-is. The seller will usually make no repairs in order to get the home to pass a city or FHA inspection. The buyers will be accepting the home in its present condition and will be responsible for making all the necessary repairs.
It’s important to remember that while the asset managers are real, live people, the actual sellers are the banks. They are institutions considering a business deal, not a warm-blooded seller with an emotional stake, and they are unlikely to be swayed by a buyer’s hardship.
Sending your offer in with a story about how this would be your family’s first home, and how you’ve saved for ten years to be able to extend this (less than full price) offer will have no influence with the bank. Also, sending in an offer with a list of things that are wrong with the house to justify your lower offer price will not sway the bank. The bank knows what is wrong with the home – they feel they have already priced it to reflect the lack of a water heater or to adjust for the broken windows. They’re concern is only (A) is your offer price acceptable, (B) are your terms acceptable, and ( C) are you a qualified buyer able to complete the purchase.
When negotiating with banks, it’s best to consider this a business transaction. Each transaction is unique, so you may (or may not) get a chance to enter into a negotiation. As your Buyer’s Agent, I can help you determine a fair offer price based on neighborhood comps and by researching past sales, put together a complete offer package, and help you negotiate the offer process. Contact me and we can get started today!