It’s true that buying bank-owned property is easier than buying a short sale. Of course, almost everything is easier than dealing with a short sale. These are known as REOs, which stands for real estate owned, where the bank has completed the foreclosure process and is now selling the property that it owns outright.

While these are easier than short sales, they are still not right for everyone.

Some of the differences you will notice when comparing them to normal sales from a “happy” seller are that these sales are truly “as is.” Banks that acquire properties through a foreclosure process are exempt from mandated state disclosure laws. This would also be true if an individual that did seller-financing ended up taking the property back this way.

The reason for this exemption is that the foreclosing party really has no knowledge of the property other than lending money. Another group that is exempt from disclosures are estates selling the property for the heirs although here some of the heirs may have limited familiarity of the property because they were raised there or took care of someone before their passing.

The paperwork also makes an REO different. While you will use one of our standard purchase contracts (many banks prefer the California Association of Realtors contract instead of the regional one used predominately here), there are also may addendums and pages of instructions on how to make an offer.

Many Realtors who specialize in REOs actually give out bid packages with FAQs, worksheets for offers and many pages drawn up by bank lawyers stating 15 to 20 times that this is an “as is” purchase. The documents can come across as a little intimidating or arrogant on the bank’s behalf in that they make it seem like they are doing you a favor by letting you buy their prized property.

Speaking of prized properties, the physical conditions of some of these homes can be shocking. While this isn’t true for all REOs, some have been stripped by the former owner. I’ve seen kitchens removed, including cabinets and appliances. Lights taken out with only dangling wires hanging. I even saw a home where the former owner took the water heater and wood floor. But the worst thing I ever saw was from an angry owner who filled the waste line up with mortar and pulled all the copper wiring out of the walls.

Not all owners do this. Some just move out and move on with their lives. But since the physical condition can be questionable at best, these homes will need the full battery of inspections so that you understand exactly what you are buying. Again, this is critical because the banks are exempt from disclosure laws so its up to you to fully satisfy yourself. You can’t come back to them later and say the dishwasher leaks.

It’s interesting how banks price these homes. People think because its a bank foreclosure, it will be a good deal. Sometimes banks will intentionally price these below their appraisal in order to generate a bidding war amongst buyers. They figure the low price will attract multiple buyers.

Many would be making a mistake by thinking that they can take this low price and low ball the bank. More often you will get beat out by a cash buyer who can close escrow fast. If, on the other hand, the home has been languishing on the market, then a low offer may be successful.

A winning strategy for those wanting to buy an REO is to write a very clean offer with a short period for both financing and property inspections. And of course, it must be in as-is condition.

These deals aren’t for everyone. You must be willing to take some chances in that unforeseen problems will pop up later. If you want the seller to do all the repairs and guarantee the work is done with permits and by licensed contractors, you need to by a home from a happy seller and there are many to choose from.

Steven Hyman is the broker and owner of Century 21 Sunset Properties. He can be reached at 726-6346 or at www.century21sunset.com

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