In its simplest form purchasing a home can be broken into three parts: 1) find house; 2) buy house; 3) get keys to house. Generalizations pretty much end there. The three legs of the current real estate market are the traditional sale, the short sale and bank owned property (aka: Real Estate Owned (REO)). There are currently 230 bank owned homes listed in Portland. For the purpose of this discussion we pick up the conversation where the property is listed for sale, not the process of getting it there.
During a traditional sale and short sale the seller is the homeowner. In a traditional sale, the buyer and seller negotiate the terms (through their Realtors). In a short sale, the seller typically rubber stamps the buyer’s offer so it can be given to the bank for third-party approval. The bank will counter with their terms for and both the buyer and seller have the option as to whether they accept them. The majority of the negotiation is between the listing agent and the bank’s representative.
When a bank owned property is listed for sale the institution is the owner of record and there is no third party to the sale. There are many ways in which the intitution becomes the owner (foreclosure, deed in lieu of foreclosure or by purchasing a portfolio from another institution, etc) . The Asset Manager makes all decisions as the seller. They use Broker Price Opinions (BPOs), which are mini-appraisals (not dissimilar to a CMA), pictures, bids and other information to make their decisions. It is very unlikely that they have physically seen the home.
This is the first part of Atlantic & Pacific Real Estate’s FAQ about buying bank owned property. Keep in mind that every situation cannot be covered here. I’ve added some comments (my opinions) from experience in italics.
What price does the bank (seller) want for the property?
The same as if a private seller was listing their home. They want the listing price or better.
How did the seller come up with their listing price?
The sellers typically try to determine fair market value through a combination of Broker Price Opinions and appraisals on the property. The condition of the property was also taken into consideration.
How do I place an offer for the property?
All offers must have either a pre-qualification letter or proof of funds attached to them. A pre-qualification letter can be obtained by going to a direct lender. Proof of funds can be a bank statement showing the balance in the account exceeds the offer amount or a statement from a securities company. A prequalification letter must be current and contain the following information:
* Borrower’s name * Borrower’s lending limit * Lender’s name * Lender’s address
* Loan Officer’s name * Loan officer’s direct phone and fax numbers.
Once you have obtained proof of funds or a pre-qualification letter, then you should begin looking at houses.
You should always get pre-approved early on in the home search process and you are typically able to choose what lender you use to complete the purchase. Most bank owned properties will also require a pre-approval from their selected bank (a pre-approval from Wells Fargo Mortgage for a Wells Fargo owned home). Your Realtor will have those instructions in the listing. There may be incentives offered by the seller to use their bank. It’s an extra step to get pre-approved for a second time but it also provides a second opinion which can never hurt. You might have to go through the hoop-jump numerous times if you are making offers on property owned by different banks. If you are providing a bank statement as proof of funds black out your account numbers before giving it to anyone, including your Realtor.
What should I offer for the property?
You should make an offer that feels comfortable to you. However, if you are going to submit an offer substantially below the list price, be prepared that you may: (1) be outbid by other prospective buyers (2) need to wait an extended amount of time for a seller’s answer; or (3) be forced to look for a different property if your offer is not accepted.
We always want our buyers to be comfortable with what they are offering on a property. In the case of multiple offer situations we ask the question, ” if you know you want the property and the other party gets it for $x more than your offer will you be upset?” Just because someone else is willing to pay more doesn’t mean you should be. Multiple offer situations are returning to our market in both traditional and bank owned properties. An accurately priced home will sell in any market and just because it is bank owned doesn’t mean it is underpriced, accurately priced or overpriced.
Will the seller look at more than one offer?
YES. And the seller will not consider a property under contract until the seller has signed all contract forms and addendums. (They will not do this until the buyer has signed all of these forms first). Therefore, if you make an offer on a property and receive seller addendums back, you need to review and (if you agree to the terms) sign them immediately and return them. (Never cross out or make changes on the seller addendums unless you are willing to have the seller treat such changes as a counter offer that can result in your offer subsequently being rejected by the seller)
The Asset Manager may reject, accept or counter an offer; just like a traditional seller. In the case of multiple offers they may come back to all interested parties with “make your highest and best offer.” At that point the buyers can choose to revise their offer or stand pat. Potential buyers are not going to know what others have offered. Banks will often have their own paperwork and addendums. Most banks use some sort of electronic property and offer submission system and Realtors may never have the opportunity to talk directly with the asset manager so complete paperwork is imperative and filling it out in a timely manner is equally important. Electronic signatures such as those through DocuSign may or may not be permitted.
Read Part Two