How to Buy a Short Sale or Bank Owned Home
How to Buy a Bank Owned Home in San Diego County
by Bill De Ridder, President of QualityFirst Real Estate
1. Find the Right Location -
Even though you are looking for great deal, real estate, as always, is all about location. Don't be seduced by a great price into living in an area where you and your family are not happy. One of the first keys to finding a good bank owned home is to select the area you want to live. Right now, there are bank owned homes in every community. Maybe not as many in some areas as others, but there are bank owned homes in every city. The next step is to be open to broadening the area you have selected.
By expanding the circumference of your target area, you exponentially increase the amount of bank owned homes to select from. If being in a certain school district is your number one concern, check the boundaries of the district and allow a search of homes in the entire area. Another suggestion is to look for homes that are smaller than what you really want. Take a look at homes that can possibly be added on to and remodeled. Many if not most bank owned homes are in some sort of disrepair. By looking for a home that can be bought for less money than your budget, you can find more selection of homes to choose from.
The most important single thing a buyer can do to find a good bank owned home is to find an agent that works REO’s. Agents that list and sell bank owned homes either have a list of homes that are coming on the market or are on the market and know the ins and outs of how much to offer the bank and how to make the buyers offer look better simply by knowing what terms the bank most likely will accept.
2. Here is why REO homes and Short Sales take so long to close escrow.
The main reason that REO homes and Short Sales take so long is the amount of loans that are being processed by the banks and loan servicing companies. Each asset manager is handling a workload in excess of 200 files at all times. Each file is a complex financial puzzle and no two files are the same.
There are an incredible number of moving parts in each file that need to be addressed. If the home is bank owned, is the home still occupied by the previous owner or possibly a tenant? If so, the bank needs to initiate an eviction on the previous owner or offer relocation assistance to help the occupant some financial help to find a new place to live. If the home is tenant occupied, the bank must comply with federal guidelines and give the tenant adequate time to relocate or again offer relocation assistance. Once the home is vacated, the bank must rekey the home and secure the property.
Then a BPO (Broker Price Opinion) which is a mini appraisal, must be performed by three independent brokers to give the bank a current values “as-is” and repaired. Once the BPO’s are received by the asset manager at the bank, a decision must be made whether or not to make the suggested repairs. If repairs are going to be made, contractors must be hired and contracts signed and work completed. This can take anywhere from 3 or 4 days to several weeks. Only at this point can the property be ready to put on the market.
Once on the market, if priced right, we normally get multiple offers on homes. The asset manager must review each offer, often times going back to all potential buyers and ask for the buyers “highest and best” offer. This can go back and forth for quite some time until the asset manager approves the best offer for the bank (not always the highest offer). If the home is a short sale, there are an entire different set of issues that must be dealt with. The home can be marketed much sooner but there are delays that are much more protracted in the negotiation of the purchase.
The challenge in getting short sales accepted and closed depends on a number of factors. Short Sales are definitely the new preferred method of dealing with loss mitigation by lenders. But there is currently no conforming method to contract with the banks. While most banks want the same information from the seller, each bank has their own way that they want it presented. If the short sale package is either incomplete or sent in the wrong order, this delays the process not only for that file but the other 200 plus files behind it. Other major hurdles in negotiating a short sale occur if there is more than one loan on the property.
When an offer comes into the bank, the banker first checks to see if there are more than one loan on the property - running a title search to see what liens and judgments are on the property. If there are multiple liens on the property, each lender and lien holder needs to be dealt with. This can take a long time. The listing agent should be handling that negotiation with lenders - not the buyer or the bank. If there are two or more different banks involved it can be very complicated and delays are common as the paperwork weaves its way through the respective organizations.
3. What can you do to speed up the REO home escrow and closing process?
Look for pre-approved bank short sales. You are looking for a bank sale that was approved but has fallen through for some reason. The bank has a price it is ready to accept and you just need to make the offer. Check the Internet listings and the MLS -but the best option is a knowledgeable real estate short sales specialist who has lots of contacts to find short sales not listed on the MLS.
If you need financing to buy the house, you should be pre-approved for loan, not "pre-qualified". The bigger your down payment and payment in cash will help facilitate getting the home. Having all financing set will speed up the process.
Another good way to speed up the sale and make sure you get the house is to offer to buy the house "as is". Banks like that.
Once you do get an approval on a property, be prepared to do your inspection quickly and respond to seller disclosures. Typically you only get 10 days to complete and remove any contingencies. Have an appraiser and inspector selected and ready to go on short notice.
For prime "move in ready properties in good locations, there are often multiple offers. You need to be prepared to pay a price over the asking price. The more cash you can bring to the table, the better your chance of getting the house. Even if there are no other offers on the home, be prepared for the bank to reject your first offer and make a counter offer. A larger "short sale specialist” agency with lot of agents and lots of contacts with banks may be able to negotiate directly and speed up the process.
Finding and purchasing a distressed, bank owned home is a challenge. However, if you are prepared, have your financing in place, and are working with professionals who know the short sale and bank owned property environment in your region, you have a much better chance of getting the home of your dreams at an incredible price.
BILL DE RIDDER has over thirty years of real estate experience in most aspects of the industry. He obtained his degree from San Francisco State University in Public Administration in 1974. In 1978 he obtained his real estate agents license and then his broker's license in 1984. Bill's career began in the Title Insurance industry rising to Regional Sales Manager with Stewart Title and gave extensive seminars in real estate financing in Land Contracts. Bill has owned Real Estate Companies in North and East San Diego County. Bill has worked with builders handling their tract homes and over the course of several years, sold several hundred homes. Additionally Bill worked in the banking industry originating loans and worked in the foreclosure trustee business working with loss mitigators and asset managers.
QualityFirst (http://www.qualityfirstrealestate.com) is a full service Real Estate Company specializing in REO properties. Quality First Real Estate provides a broad array of real estate services including representing sellers in listings, buyers on the purchase of properties, mortgage loans for purchase and refinance, home marketing for lenders and home managers, and property management. With decades of successful experience in the Southern California real estate industry, working with a wide range of individuals and companies, QualityFirst can provide ALL the services needed for those looking to sell or purchase REO homes and properties.
Investors and buyers looking for great opportunities on a REO or short sale home can directly access the online listings of bank owned homes for sale at http://www.qualityfirstrealestate.com/bank_owned.php
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