A REO stands for Real Estate Owned which really means the home is Bank Owned. A Bank Owned home is a home post-foreclosure. Meaning the bank has already foreclosed on the seller and now the bank owns the home.
Buying a bank owned home is as close to a normal sale as a buyer can get when working with distressed properties. The pro – quick response time. When submitting an offer on a bank owned property the buyer can expect to get a response within a week – and once the offer is accepted the escrow period is like any normal transaction. A buyer is granted their contingency periods that start the day after the offer is accepted. It’s a breath of fresh air for a buyer since short sales are slow and painful. Because bank owned homes are smooth transactions for the most part – we do see them move off the market much quicker than the dreaded short sale.
Buying a bank owned home means one thing – no real disclosures. Sometimes it even means the home is in various forms of neglect. The bank, having never lived in the home, does not provide the buyer with the disclosures a normal seller would provide. The two most interesting reads not provided by the bank, aside from inspection reports, are the Transfer Disclosure Statement (TDS) and the Seller Supplemental Checklist (SSC). These two standardized forms ask the seller a myriad of questions covering neighborhood nuisances and issues with the home. The bank does however need to provide the buyer with the California State Mandatory Disclosures, one of which is the Natural Hazards Report which covers natural hazards around that particular property.
How This Affects the Buyer
Banks require an As-Is sale. This is typical of many sales. As-Is means as disclosed. However, since the bank has no personal knowledge of the home – it is hard to disclose the potential issues. Since the disclosures are weak, the burden is placed on the buyer to investigate. As Realtors we cannot attest to the condition of the property or neighborhood – but we do encourage the buyer to seek professional opinions. Some buyers visit the local police department and ask candid questions, I’ve even had buyers door knock the surrounding homes to speak to their potential neighbors.
As for the condition of the home – that’s the easy part. As in any buying transaction, the buyer will have contingency periods to do all their inspections at which point we’ll get the home, pest and roof inspector out to check out the home and provide the buyer with a written report. The buyer can do any inspections they want, from lead to asbestos, to truly anything that is of concern to them and for their plans for the property – pretty much just like any other buying transaction. The only downfall – if issues arise – often times the bank does no repairs.
How We Go About All This
Since these transaction are so cut and dry, before we sit down to write the offer with our buyers, all parties take a good hard look at the property to determine the buyers offer price. A buyer does not perform their inspections prior to writing the offer because a home, pest and roof inspection costs upwards of $500. After the offer is accepted, the buyer will pay for their inspections and we proceed from there.
Generally, the buyer knows what they are getting into. Often times these homes are in states of neglect and may be missing key fixtures or appliances. In the end, both the buyer and their Realtor take all of this into account and write their best offer.
For more tips on writing an offer on a bank owned home – stay tuned!
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