How to Buy a REO FAQ.

What is a REO?

            A REO is a property that the lender or bank acquired through foreclosure. It an acronym for Real Estate Owned. It is pronounced by saying the letters,  R. E. O.

Is the price firm, or can I make an offer?

            All list prices are negotiable.

Will the bank accept a lowball offer?

            No. The banks are sometimes accepting lower offers than in the past, but a very low offer is not acceptable.

Will the bank counter a lowball offer?

            You will get a counter offer, but the asset manger must have a serious offer to give a serious counter. I’ve seen counters only a few hundred dollars less than list price, and a few times the counter has been list price.

The property needs a lot of work. Will the lender accept less because of this?

            While the lender has not had any inspections, and does not know the actual condition of the property, the lender is aware of the property’s general condition. Reports have been made by the listing agent and appraiser. Condition of the property has already been taken into consideration when the list price was set. The lender will consider offers, but don’t expect them to knock off thousands for repairs, because they have already lowered the list price due to condition.

Will the lender make repairs?

            Very rarely. When the property is listed, it is cleaned, any trash and debris removed, and the yard maintained. If there are safety issues, example broken steps, the lender will address it to insure no one is injured while viewing the property. But addressing it may not mean repairing it. Using the broken step example again, the lender may simply have the steps blocked off if there is another way to access that area.

            Also very rare, the owner may make minor repairs required by the buyer’s lender as a condition of the loan closing. It is extremely hard to get the asset manger to agree to this. If we believe conditions are right, HOME REALTY will fight for this for you. Proper conditions include; 1) buyer using a lender that HOME REALTY has both experience with and confidence in; 2) Assurances from the lender that the loan will close if the lender required repairs are made; 3) confidence that the buyer will be able to close if the lender required repairs are made. This will almost always mean that a HOME REALTY agent is also representing the buyer and can vouch for them.

Do all REO’s need work?

            No, many are in move in condition.

Who decides to accept or counter my offer?

            The asset manger. In most cases, when the asset manger approves an offer, it is still subject to management approval. So far, I have never had an offer approved by an asset manger and then rejected by management.

How long will it take for the bank to respond to my offer?

            Three to five business days is common. Sometimes quicker, rarely longer.

My offer was in first. Won’t it be accepted or countered before any other offer is accepted?

            No, the order the offers are received does not matter. All multiple offers are consider at the same time. Sometimes, even if at least one of the offers is acceptable, the asset manger will counter all offers for “The Highest and Best Offer.”

Isn’t the highest offer always accepted?

            Absolutely not. There is much more to an offer than the sales price. It is very important to have an agent that knows how to prepare a professionally written offer. I have seen many highest offers rejected and another offer accepted because the agent preparing the offer did not follow instructions. Incomplete offers are not even considered. I’ve had a second offer accepted while the first agent is trying to correct all their errors. Realtor Instructions for REO’s are posted on this website. Many agents that are writing an offer don’t even take the time to read them. All HOME REALTY agents have REO experience, and know how to prepare an acceptable, professionally written offer.

            By the way, this is true for all offers, for owner occupant sellers as well as REO’s. Buyers often focus on price, but there are any other factors for the seller to consider. Financing is very important. Has the buyer been pre-qualified? What kind of loan? Is the closing date too soon, or is it too far away. The Virginia Association of Realtors purchase contract has a total of 32 paragraphs. Each one is there for a reason. Sadly, many buyer agents also focus only on price. They cost their buyers money by missing all the other important considerations.

            Recently, I had a buyer’s agent bring an offer for a REO. The asset manger accepted the purchase price, but countered the closing date and removed the seller paid termite and septic inspections. The buyer’s agent then brought a counter from the buyer with a higher purchase price, but the same closing date and seller paid inspections. Naturally, the asset manger accepted the higher purchase price, but again countered the closing date and removed the seller paid inspections. This time I sent the counter to both the buyer’s agent and her broker. Third time’s the charm right? Not this time. The buyer’s agent brought a third offer with an even higher purchase price, but did at least correct the closing date. Again, the asset manger accepted the higher purchase price and countered to remove the seller paid inspections. A fourth offer came, and finally, after costing her buyer thousands of dollars, the buyer’s agent got it right.

How much earnest money deposit is needed?

            Usually a $1,000 earnest money is required. A very few REO sellers will accept as little as $500. Some require a 3% earnest money deposit. When a cash offer is made, some REO seller’s will require a 10% earnest money deposit. Earnest money deposits for any REO’s currently listed with HOME REALTY are posted under the property address at Realtor Instructions for REO’s.

What if I don’t have the minimum earnest money deposit?

             If we believe conditions are right, HOME REALTY will fight for this for you. Proper conditions include; 1) Buyer using a lender that HOME REALTY has both experience with and confidence in; 2) Assurances from the lender that the loan will close; 3) A strong pre-qualification letter, or better yet, a pre-approval letter; 4) Confidence that the buyer will be able to close. This will almost always mean that a HOME REALTY agent is also representing the buyer and can vouch for them.

Can I write a personal check for the earnest money deposit?

            Yes. Some sellers require a cashier’s check, but this is rare. Cash will not be accepted for the earnest money deposit.

Do I get the earnest money deposit back if my offer is not accepted?

            Absolutely. In fact, your earnest money deposit check is not even deposited into the HOME REALTY Escrow Account until after your offer is accepted.

Should I have a Buyer’s Agent?

            While the listing agent does represent the seller, the listing agent must inform the buyer of all known material defects, and treat everyone fairly and honestly. It is most important that you select an agent that has experience writing REO offers. Asset mangers will not even consider an incomplete or incorrectly written offer. So far the record is six tries before the buyer’s agent was able to prepare the offer well enough to even be considered by the asset manger. An inexperienced REO agent will cost you time and money. All HOME REALTY agents have REO experience.

Does the property have a clear and good title?

            The foreclosure attorney makes sure the title is clear. It is your closing attorney’s job to research the title. If he finds a title issue, it will be corrected prior to closing. If it can not be corrected, the contract will be voided and your earnest money deposit returned to you.

Who pays the back real estate taxes?

            All real estate taxes are paid by the seller up to the day of closing. It is your closing attorney’s job to see that this is done. The buyer is responsible for all real estate taxes from the day of closing forward.

Can I have a Home Inspection?

            It is highly recommended that you do. Neither the seller nor HOME REALTY has any knowledge of the condition of the property. With a foreclosed property, we have no one to ask “Does the furnace work?” or “How old is the roof?”  If possible, it is best to have the home inspection completed prior to making an offer. If the offer is made contingent upon the home inspection, it must be completed within 10 days of offer acceptance.

Will the bank pay for a termite inspection, septic inspection and well water test?

            Sometimes, but not very often. It is highly recommended that you has a buyer have these inspections done. Paying for the inspections is cheap insurance compared to finding out after closing that expensive repairs are needed. If you are financing the purchase, almost all loans will require a termite inspection. Many also will require a septic inspection and well water test. When these inspections are included in the offer, the REO seller will require that they are done within 10 days of the offer acceptance.

What is The National REO Brokers Association?

The National REO Brokers Association (NRBA) was founded in 1998 by several REO brokers from around the United States, all of whom currently list and sell REO properties. It provides the necessary support and tools to member brokers, so as to make them both better qualified and more efficient in the marketing and selling of bank-owned properties. NRBA also provides banks, servicers, outsourcing companies, and all those requiring the services of an REO Specialist™ an easy and efficient way to find qualified individuals throughout the United States.

Good REO Brokers have experience, or at least a working knowledge of, not only real estate, but appraisals, construction, title searches, real estate law, property management, rental markets, employment conditions, taxes, and financing. Bank asset mangers often manage 200 to as many as 500 properties at one time. They depend on REO Broker to provide detailed, timely, and accurate information.

Membership into The National REO Brokers Association is limited to experienced REO Brokers. Applicants must have proven  experience with REO management, provide at least three references from bank REO asset mangers, and have a proven track record of accurate Broker Price Opinions of assets. Currently, less than 2% of all applicants are granted membership.