In the day-to-day grind of selling bank owned properties in Baltimore I come across many unique and interesting situations. There is never a dull moment in this job. You interact with all walks of life, and everyone has an angle of what they want to achieve. On occasion I sit and wonder to myself what is the general public’s perception of what a bank owned property is. What I hear on a daily basis are questions from many different people. However, over the years there have been some common themes. This is my attempt to give consumers an insight into what it really means by dispelling myths, inaccuracies and hopefully answering some of the more commonly asked questions.
10) What does the word REO stand for?
In the banking world there are different departments. A long time ago when a bank foreclosed on a property it was sent to the Real Estate Owned department. So in the banking world when they had a new property in inventory it was sent to the REO (real estate owned) department. In the end they became known as REO’s and the acronym stuck.
9) Does it really take 6 months to buy a bank owned property?
There is a common misconception that it takes a long time to purchase a foreclosed property. The problem is that over the last several years distressed sales are more prevalent than traditional sales. Within this category there are also short sales. A lot of times buyers consider them one in the same, and they are two totally different animals. Short sales are different and take longer than bank owned homes to close. Reason being is that the bank owns the home and has already determined their exit strategy. Once a contract is ratified the decision to sell has already been made. Basically at that point it is the same as any normal transaction with the only difference being a financial institution is the seller and not Jane Doe.
Hunt Valley Foreclosure Property
8) What is the difference between an REO and a Short Sale?
An REO is owned by a financial institution and has already taken title to the home. In that manner they are the rightful owner of the home and are able to sell the house as they see fit. A short sale is a situation where the seller owes more than the property is worth. What happens in this situation is that they are “short” the funds to close. Hence the term short sale. The next step for the owner is to go to the lender after they have a ratified contract and ask the bank if they would be willing to make up the difference between what is owed (outstanding balance) and what the net sales price is. The bank does their due diligence into the sellers situation and the value of the real estate, then makes a decision if they are willing to take the loss.
7) How does the bank determine what to list the home for?
The answer is pretty complex and every bank does it differently. However they use a lot of the same methods you would use to sell your home. They ask the listing agent to complete what is a called a BPO (Broker Price Opinion). They will at the same time ask an appraiser and an independent real estate agent to complete a 2nd BPO to make sure the first one is accurate. Once they have all of this information they sit down with computer models called AVM’s (automated valuation machines) and reconcile the data. At that point they determine whether or not to list the property in its current condition or sell after repairs have been made. It really just depends on each institutions preferred method and what they put the most weight into.
6) Because its a bank owned property its a good deal?
I get people calling all of the time with green in their eyes. They think that the price I have a property listed at is too good to be true and they have stumbled on their own lottery ticket. Their vision is that the home is in move-in ready condition and doesn’t need work, yet priced 50% below retail value. It always comes down to a litmus test. If it sounds too good to be true, then it probably is. Banks sell properties at what they feel are market rates given condition. At times they may take the same unsound approach that traditional sellers take of listing high and chasing the market downwards. But in the end the value in bank owned properties is dealing with non-emotionally attached sellers who want to make a business decision. Value exists in these homes if you are working with a good enough agent to find the deal for you. It is usually in a value add situation where you put sweat equity into the house. Taking someone’s lemon and making lemon-aid with it.
Northwood Foreclosed Home
5) What is the difference in buying a foreclosed home and standard sale?
The good news is that it works the same way as you would buy any other home. They are listed for sale through real estate agents on the multiple list (MLS). Regular standard contracts are used and the transaction is mediated by a title company. There are nuances with REO sales that are different from traditional sales. The most important one is that the properties are by and large being sold as-is. This means that the bank is selling the property in its as-is condition. What you see is what you get and home inspections are for informational purposes only.
4) Why are financial institutions exempt from the disclosure and disclaimer statement?
Disclosure and disclaimer statements are 2 parts. What happens is that the seller either discloses known latent defects in the house or disclaims that they have no knowledge of any latent defects in the home. When a bank owns the house, they have never lived in the house, they more than likely have never stepped foot in the house and truly have no knowledge one way or the other about the house. So for that reason they are exempt in the state of Maryland from having to provide this statement to the buyers.
3) Can you as the REO agent ask the prior owner certain questions?
Sometimes when the REO agent arrives at a new property for the first time, they are found to be vacant. For various reasons the prior occupants have abandoned the property and are never to be heard from again. Sometimes on the first visit you find the former owner, or the tenant of the former owner still living in the home. The banks try to reach a financial agreement to have the party relocated or as a worst case eventually file eviction proceedings. Either way, we as REO agents generally have no contact with the prior owners, and for the most part have no real insight into the past history of the home.
2) What does it mean AS-IS?
The term as-is comes from real estate agent terminology shortened from as-is, where-is. What this means is that the property is being sold in its current condition regardless of defects. The selling entity will not be making repairs and what you see is what you get. Buyer beware!!
1) How do I buy a foreclosed home?
There are many methods, strategies and ways to go about it. The best way in my opinion is to go to the source direct…. cut out the middleman. Since banks assign these properties to agents in bulk, there are people out there who specialize in this real estate specifically. For a free list of active foreclosed homes in Baltimore and surrounding communities please contact a local REO agent who specializes in bank owned homes.
For more information about bank owned homes please feel free to contact Josh Mente directly.
Baltimore Real Estate Tips 