Particularly following the mortgage crisis of 2008, REOs have become an important segment of the real estate market and an attractive option for investors. Banks are not in business to manage property, so – in most cases – they are ready to make a deal and get foreclosed properties sold as quickly as possible.
Purchasing a bank-owned property has its own unique challenges and obstacles, but it can be well worth it to work around those. Understanding what the hurdles are is the first step in building your strategies for overcoming them. Here are some of the hurdles that you can expect to encounter in purchasing property directly from the bank.
Hurdle #1: Dealing with a lot of competition
As we noted above, the banks are motivated to sell these properties as quickly as possible. This results in some pretty fierce competition for available deals in most markets. Actually closing the deal requires the buyer to be well prepared when the offer is made. This is can be done very efficiently when the relevant documents and property information are assembled in one place online. Otherwise, the process can be a bit time-consuming, and this may result in another buyer signing the contract first.
Hurdle #2: Higher earnest money
A traditional issue with buying property directly from the bank is that of earnest money. Most banks require a higher amount than is typically expected by private owners. The verification process that’s in place at Brevitas can help, by providing all parties with the financial details they need to make the deal happen. Transparency facilitates the process.
Hurdle #3: Proof of funds
Banks also have stricter requirements for demonstrating that you can pay for the property. This may include providing proof of funds or, in the case of a loan, submission of a preapproval letter. In the case of online platforms, it is becoming common practice to collect this information on buyers that use the site. In this way, sharing information with a designated seller is a simple matter of granting access.
Hurdle #4: Amount of sale is public record
This can become a challenge when you are ready to sell the property in question. A purchase from a bank is more public, and the amount that’s paid for the property is available to anyone. This could be used later in negotiations in an attempt to force a price reduction.
Hurdle #5: Locating properties
It can be difficult to get reliable information on available REOs. One approach is to contact banks directly for the information, or to employ the services of an agent that specializes in bank-owned properties.
To get up to date listings for bank-owned properties, it’s often necessary to have access to broker-only sites that post that information. Some of the more accessible websites that have information about bank-owned properties can be inaccurate and may show properties that are already pending as still being for sale. This results in a lot of wasted time for the investor. Fortunately, tools like Brevitas are available, providing access to private listings in an easy to use format. The site’s transparency gives users all of the current information on a property so that decisions can be made with confidence.
The advantages of buying bank-owned properties include low down payments, great values and more. These make it worthwhile to pursue these deals, and navigate the unique challenges they entail.