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
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 manager 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 manager 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 manager. In most cases, when
the asset manager approves an offer, it is still subject to management
approval. So far, I have never had an offer approved by an asset manager
and then rejected by management.
How long will it take for the bank to respond to
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
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 manager 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 manager 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 manager 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
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
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
Yes. Some sellers require a cashier’s
check, but this is rare. Cash will not be accepted for the earnest money
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 manager. 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 managers 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
managers, and have a proven track record of accurate Broker Price
Opinions of assets. Currently, less than 2% of all applicants are