The purchase of a bank-owned home is unlike purchasing a home from a typical homeowner. Here is why: Once a property has been foreclosed or returned to the bank it becomes an REO (Real Estate Owned) asset of the bank. Those assets are assigned to an Asset Manager who is probably located in another state and has likely never seen the property. They have hundreds of these asset REOs to liquidate for the bank. They have no emotional tie to the property. It is now just inventory to them.
The bank first contacts a local agent who values the property via a Broker Price Opinion. It is assigned a value and the asset then awaits disposal.
Once the Asset Manager is ready to dispose of the property, he contacts another agent working in the area. Sometimes that agent is the only one in the state representing the bank who doesn’t even necessarily understand the local market. They are simply given the property to list for sale and generally have many of these bank-owned properties they represent.
The Asset Manager does not work within the customary and usual ways of traditional sales in a given market. They operate under their own rules and use their own forms. You must agree to buy a home under those terms or your offer is rejected. Those forms and terms are designed by the bank’s lawyers to protect only the bank.
The Asset Manager will not provide any disclosures or insurance claims history. It is strictly up to the Buyer to find out whatever they can about the property during a short inspection period after an offer is accepted. The property has often not been well maintained before foreclosure and may even have been damaged by the prior owner. You buy “As Is”. You have the responsibility to discover what “As Is” is. Once you have investigated the condition of the property, you must sign off on the existing condition or reject it and cancel the purchase.
The bank’s forms or addendum may hold you to a penalty of up to $100 per day for every day you are late in closing the purchase for any reason including your lender not funding in time. If they are the responsible party for a late closing, they are not subject to any penalty. You are held to a timetable but the banks are not. Time means little to them. Remember this is a non-emotional liquidation of an asset.
The bank will answer your offer only through their listing agent when they get to it. They may wait for other offers to encourage multiple higher offers. And, they may take a lower offer for undisclosed reasons or reject all offers. They may have listed it for sale at a price they would not sell it for only to stimulate showing activity. The time of acceptance that you give them in your offer does not require them to answer in a timely manner. It is only there for you to have a way to end the negotiation on your end. It puts no demand or obligation on the Seller (bank) to answer your offer within that specific time limit.
Once an offer is accepted, it will be subject to the bank’s additional forms, terms, and addenda. Every bank has these prepared by their lawyers. They also select the title and escrow company. You either agree to their terms or they will not sell the property to you.
Your close of escrow and time of possession is not emotional to the bank’s Asset Manager. They don’t care if you have your belongings waiting in a truck to move into a home. They don’t care if they have one more document to sign before you can get your keys after recording of your closing documents. They do not work past 5 PM in whatever time zone they are in and are not located in the local bank branch. They are in an office somewhere else and may have dozens of files to close a particular day–perhaps as many as 500 files on their desk in various stages of liquidation. You are strictly a number buying their asset.
As long as you are willing to work under these conditions, you may find a great property at a discounted price. It may be worth the extra time, hassle, and discouragement that you are likely to encounter along the way. Just be forewarned and then you won’t be surprised. We will be there for you, guide you through the process and advise you for your benefit and protection. WE are the experienced part of your team.
harsh statement! But the writer, Mark Roth, uses this headturning title to get your attention to make excellent points for those who are on the fence. Namely that interest rates are at an all time low, in fact, the lowest in 40 years. He noted that in the late 70s, rates hit a high of 18%! Can you even imagine buying a house at 18%? I personally can’t fathom it as I bought my first house with an FHA loan while I was in college for 7% in 2001. In the 80s, when rates dropped from 12% to 9%, my parents practically danced their way to the 1st refinance of their home. Generation X’ers probably would never dream of purchasing a home above 7% given all we have ever known are super low rates hovering between 5-6%. Mr. Roth points out the history of previous interest rates as well as the impact of rates on one’s purchasing power. I happen to agree with his prediction that as the economy becomes more stable, interest rates WILL rise to hedge inflation. My prediction has been that by this time next year, rates will have risen 1-2% at a minimum.
Consider this. If there is a 10% decrease in price and the $250,000 falls to $225,000 in one year, but you wait to purchase and the interest rate rises to 7%, your payment will be $1422. You spend more money per month plus at the higher interest rate, you pay more interest over the life of the loan. Real estate appreciation is always a cycle and as the economy stabilizes, values will level out. Steve Harney is already analyzing data this is happening in many markets and that this will occur by 2014 in many states. Making a home purchase is still a decision that should be weight carefully and is not for everyone. One important consideration will depend on how long you plan to stay in the home. 
that if you are planning on being a homeowner now and/or in the foreseeable future, or if you are looking to move your family into a bigger home, then pay more attention to the interest rates than the price of the home. If you have a steady job, good credit, and the down payment, then you really are being offered the gift of a lifetime.”
