Bank-owned homes are homes that have been repossessed by banks due to foreclosure. Foreclosed property is first put up for sale through public auction. If no one makes an offer on the property, it is returned to the lender and the bank can either keep it as an asset or put it up for sale through assigned real estate agents or the bank’s loss mitigation department.
Often, the appraised value of homes owned by the bank is less than the balance on the mortgage loan. Deficiencies may be related to subprime loans, overextension of credit, second and third mortgages, and tax or creditor liens. Another cause of declining property values stems from economic conditions that have devalued real estate values by as much as 40 percent.
Once lenders take possession of foreclosed homes, they can negotiate with creditors and government agencies to remove liens and judgments. If the foreclosed property is in poor condition, lenders sometimes invest funds to return the home to livable condition. Repair costs are usually added to the sale price.
Bank-owned real estate typically commands a higher price than foreclosure properties sold through auction. However, bank-owned homes sell on a clean time; eliminating the need for buyers to go through the bond removal and judgment process often associated with buying foreclosed homes.
Bank foreclosures are purchased directly through the lender or their designated real estate agent. Buyers should be prepared to pay full sales price unless home inspections reveal substantial damage or they are purchasing homes with cash.
Banks incur substantial financial losses through the foreclosure process. It is common for mortgage lenders to reject low offers and make multiple counter offers before accepting an offer to buy.
Bank-owned homes are also known as real estate, REO properties, and bank foreclosures. Today millions of REO homes are available for sale across the country. The average purchase price is around 10 percent below market value.
One way to get more savings is to look for investment companies and real estate investors that acquire bank portfolios. Buying houses wholesale allows investors to get wholesale prices. These savings can be passed on to individual buyers or other investors. Banks typically get rid of foreclosed properties that cost them money to maintain.
Buyers can find exceptional deals and affordable real estate by purchasing bank repo houses from wholesale investors. Often wholesale properties can be purchased for 20 to 30 percent below market value. When buyers purchase REO homes below market value, they gain instant home value that can provide the funds needed for repairs or renovations.
Foreclosed real estate is sold as-is, so buyers should be prepared to spend time and money renovating the property. It is crucial to engage in due diligence and obtain a professional home appraisal and inspection before making an offer to the bank. Buyers should also take the time to research the area and research housing trends, anticipated growth rate, property taxes, flood zones, school districts, and crime rates.
Taking the time to inspect bank-owned homes and research the area can reduce financial risk. Start by locating real estate investors who specialize in buying and selling distressed properties. Doing so can help buyers locate suitable real estate to generate a good return on investment.