News, insight and some thoughts about the Sacramento-area real estate market

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May 28, 2008

So you might buy a bank repo

·        Not all REOs are a great deal. Certainly, there are good buys out there, and most REOs will end up selling for less than the market value. But prices and property conditions can be all over the map, no pun intended. It's important to do your homework on market values in the neighborhood, what repairs need to be done to the property, the impact of competing bids and future price appreciation potential.

·        You're not the only one interested. More and more people are looking for REOs, and that has pushed up prices and created competitive bidding situations in some cases. In one recent example, there were 21 multiple offers on a property. An experienced Realtor may help you find bargains before they hit the market or before 10, 15, or 20 offers come in. The key is to move quickly with an offer, and make sure you have a well-written proposal with the right documentation, the way the banks like it.

·        Be realistic about your offer price. Most REOs are already discounted, so trying to low-ball the seller is not necessarily going to work. Banks are not naïve when it comes to property values and they are not in the business of giving homes away. With more competition, it is likely a property will sell for asking price or even slightly higher. Recently, a buyer offered $230,000 for a home listed at $260,000. Within days, there were a host of other offers and the home sold for $280,000 - still below the $300,000 market value.

·        Be careful buying a home sold "as is." In these cases, buyers are flying blind without professional help. The bank does not provide a disclosure statement, the document that most sellers must fill out listing problems with the property. It is a good bet that the person who just lost their home has been in financial trouble for quite some time and did not have funds to take care of the property. That means there might be hidden issues with poor maintenance, neglected landscaping, interior damage, faulty appliances and other problems. Professional inspections and the guidance of real estate experts are especially critical in these situations.

·        Home conditions can vary significantly. There is such a wide array of REOs and the conditions of these properties can vary just as much. We have seen properties trashed so completely that a condominium that sold for $180,000 just two years ago now is being listed for $40,000. But in other cases, the properties are in reasonably good shape and only need minor touch-ups.  Some banks will fund repairs on REOs, but many do not. They generally want to spend as little as possible to get it sold so it may be up to you to make any repairs.

·        Look for the right home first, not just REOs. Because they have been in the news so much lately, REOs seem to be the buzzword around real estate these days. And while buyers could find good value in a bank owned property, there are many other potential opportunities beyond REOs. There are "short sales," where lenders will agree to accept less than the amount due on their loan. There are also probate sales and even very attractive traditional sales. It's important to not limit yourself to only REOs, but to consider the right home and right neighborhood for you. There are good values all around right now.

Bronswick photo courtesy of www.nrtinc.com