If I could give you only one word of advice for buying a property in the turmoil of today’s distressed housing market, it would be REO. REO is an an acronym for “Real Estate Owned” and it refers to all properties owned by a bank after they have foreclosed on the previous owner for non-payment of their mortgage. Banks are a for-profit business and having REO properties severely impacts their profitability. If you looking to buy a property for up to 70 percent below market value, buy an REO.
Anyone with a pulse and the desire to purchase a home has the same goal of buying REO properties just like you. This means there is a lot of competition that you will have to overcome to get your dream property. Some people shy away from competition because they are resigned to the thought they will not be successful in purchasing the property. Let me give you some tips on how to greatly improve your chance of crushing your competition and get your offer accepted.
Tip1: Money talks
The quicker a bank can sell a property, the better it is for their bottom line. If your offer is contingent on getting a mortgage that slows the time frame for you to close to 30 days or more, the bank will jump your offer for one that will close much quicker. Banks will accept a lower priced offer over a higher priced offer if the lower priced offer can close in a few days instead of a month or longer. If you are able to make an all cash offer and can close in a week, your offer will immediately be put at the top of the pile and will have the best chance of being accepted by the bank.
Tip 2: Highest Net Price Wins
Banks use a form called a HUD-1 or a Net Sheet to evaluate competing offers. This form shows the net amount the bank will receive on an offer after paying for all commissions, closing costs and other fees. The highest offer price doesn’t always win but the highest net offer will almost always be accepted. If you are relying on financing in your offer, don’t ask for many concessions from the bank so that your net offer to the bank will be high. This will allow you to purchase properties when you require financing and may allow you to beat out all cash offers.
Tip 3: AS-IS
Most banks want to dump a property as quickly as possible. They are definitely not interested in paying someone to fix up the property to your standard just to get you to purchase the property. Banks will rarely, if ever, make an repairs to a REO property that they are selling. So do not ask for them to make repairs in your offer.
Tip 4: Pre-Qualified or Proof of Funds
If banks enter into a contract with you to purchase their property, they want assurances that you will be able to actually close on the property. This assurance can be found in a pre-qualification letter from a bank that states you have met their requirements to qualify for a loan that will allow you to purchase the property. If you are an all-cash buyer, you can offer then a Proof of Funds letter from your bank that states you have the necessary funds available to purchase the property without requiring financing.
There is a pot of gold waiting at the end of the REO rainbow. Follow these tips and you will be able to crush your competition and buy your dream REO property.