Should You Go Through a Real Estate Agent to Buy Foreclosed Property?
Purchasing foreclosed - also known as REO or bank owned -
property seems like an opportunity that is too good to pass
up for many prospective home buyers and investors. However,
while it is a home purchase, it is a very different
transaction on many levels. Therefore, utilizing the
services of a real estate agent is highly recommended
(especially for novices). A realtor with experience in
negotiating these purchases can be an invaluable ally and an
excellent guide through what can be a very complicated
As most people know, once a home owner goes through the
foreclosure process, the house is taken back by the lender -
typically a bank - and put back on the market by the owner.
Banks currently have unprecedented inventories of REO
properties, which is a drain on their bottom line. Banks
are not in the property management business, so they usually
want to sell these homes as quickly as possible to get them
off their books.
Traditionally, REO property was sold at very attractive
prices, relative to comparable homes in the areas. While
this is still potentially the case with the current
inventory, this is definitely a buyer beware scenario now.
Home values have dropped dramatically nationwide, so
increasing numbers of home owners are walking away from
properties that are "underwater" (home owners owe more than
the home is worth).
Banks and other lenders want and need to at least recover
the amount that was lent to the original home purchaser, so
pricing on these homes is less likely to be a bargain. Many
of the home owners had little to no down payment when they
purchased the home in the first place. Because of the glut
of homes on the market now, purchasing a REO home from a bank
can be a very lengthy process. The consumer should count on
at least 120 days from date of first offer, but it is not
uncommon for an offer to go unanswered for 6 months or
Real estate brokers who specialize in dealing with banks on
foreclosed properties can help. They often know the inside
the bank people to contact, and understand when, where and
how a purchase price can be negotiated. Real estate is
still a relationship game. In addition your agent should be
helping you avoid some of the pitfalls that an inexperienced
home buyer makes, such as helping you research title and
liens, and home inspections.
In most cases, REO properties are purchased "as is." If
there are liens against the property, such as unpaid taxes,
you can inherit these liens as a buyer. Make sure you real
estate agent helps you uncover any legal issues that can
cloud your title, if you decide to make a purchase.
Real estate agents usually advise buyers to get a home
inspection, even on a new home, before buying. It is
probably never more important than when buying this type of
property. However, again, buyer beware - homes sold at
foreclosure auctions are rarely available for inspection
prior to the auction. Unlike the average home owner who
has lived in the home and is aware of any problems it may
have, banks are usually unaware of issues with plumbing,
etc. Therefore, they are not required to disclose anything
prior to a sale. This is definitely a case of "what you
don't know can cost you dearly."
At the same time, lenders are even stricter than before with
their requirements for home loans. If you need financing for
your home purchase, it is wise to get pre-approved. In some
cases, especially with REO property, lending guidelines are
bit more lenient (but don't count on that). Homes with
extensive damage, as is common with REO property, can be
very difficult to finance outside of with the bank that owns
that real estate. This can put you at a disadvantage in
regards to rates and fees.
Real estate brokers with established banking relationships
will often be the first to know about new bank owned
properties, even before they become available on the market.
As with any property purchase, it is up to you to do your
own research. However, it never hurts to have some help
with someone knowledgeable about the process. You will be
competing for the best properties with investors who are
About the Author:
Stephen Daniels is an acclaimed
researcher of best practices, products, and services for a
variety of industries. If you need an experienced real
estate agent in the South New Jersey area, he recommends