We have all heard about the great deal someone got on a bank owned property (also known as a REO) or a short sale and everyone loves a great deal.
Shouldn't we all buy an REO or a short sale then? Ah, not so fast. I have some words of advice for those of you considering buying an REO or short sale property.
First and foremost, consult with a realtor or attorney that understands the REO and short sale process. Short sale offers have to be approved by many people including all lien holders, mortgage insurers and investors. The lender may have several people that have to approve the offer. An experienced realtor can help you understand the document process, approval process and time frames typical of a short sale or REO purchase.
Second, get pre-qualified. It will help you better understand how big a mortgage you can afford. Also, many lenders require you to be pre-qualified. For example, Bank of America requires all offers on their bank owned properties to be pre-qualified by one of their loan officers even if you don't use them for your mortgage. FHA also requires you to be pre-qualified to make offers on their properties.
Third, search thoroughly for the right short sales and REO properties. Many properties listed in the multiple listings service will state "short sale" or "REO". A realtor will have quick access info to those. You can also check lenders’ web sites. For example, both Bank of America and FHA have easy to use site that list their properties for sale.
Forth, make your best offer first. The lenders have a fiduciary duty to their investors to get the best price possible for these properties. Most listed prices are close to fair market value. Please keep that in mind when making your offer.
Fifth, absolutely get a professional home inspection. Many REO and short sale properties are sold "as is". A professional home inspection can reveal property defects and issues. This can also help you determine the true value of the property. Paying $40,000 under market value is not such a great deal when the property needs $60,000 in repairs.
Sixth, get a title search done. This is especially important on an REO property. Sometimes liens aren't found until the closing process has started. The seller should clear all liens during the approval process for short sales, so it is less of an issue later.
Seventh, insist your realtor work closely with the seller's agent. They are the ones who work directly with the bank that owns the home or the mortgage service company for the short sale property. In order to avoid delays in the approval process, respond to document requests quickly, communicate any changes immediately and check in with the seller’s agent often.
Lastly, good luck and enjoy your search.
Rick is a long-time Windham resident, realtor, and real estate author of a book on short sales. He can be reached at firstname.lastname@example.org.