Real Estate Owned (REO) Properties - Negotiating With the Bank
- By Volker Weiss
- Published 02/4/2010
- Real Estate
- Unrated
Purchasing bank owned REO's (real estate owned) Maui property is a process that is not familiar to most buyers. Maui REO's are foreclosed properties that the bank took back from the borrower because they defaulted on their loan. Typically, the properties are offered for sale at a foreclosure auction to the general public.
If the properties don't sell, the bank basically buys them back, and they become bank owed properties. The bank now takes on the role of the seller. Banks list their properties with local Maui Real Estate Agents. The agents then market the properties in the Maui MLS, on the Internet and newspapers to potential buyers. The properties are often sold at listing price, and most recently, even above listing price.
REO's are good investments if you know how to buy them. So if you are lucky enough to find your dream oceanfront, ocean view or beachfront South Maui property, and it happens to be an REO, even better. Higher prices Maui Condos and homes are already on the market.
Making an Offer
If you are going to purchase a bank owned REO property, you should understand how the process works and what to expect. This will only help to make your offer stronger and one that the bank will accept.
Offers on REO's are made through a Maui Real Estate Agent. You can work with the listing agent or have your own agent represent you. The listing agent, who represents the bank, will present all offers to the bank.
Bank's Response Time
The bank will respond in writing. Banks work on their own schedule, so even if you put a response date and time in your offer, they may not keep to it. On average, it can take a week for a bank to respond. Be patient. Each bank handles their REO's differently. The banks are swamped right now with foreclosures, REO's, short sales, mortgage modifications and refinances. They are short staffed. If you don't hear back within a reasonable amount of time, you can make a decision if you want to keep waiting or find another property.
Properties are Sold in an as is Condition
REO's are sold in an "as is condition". Meaning that what you see is what you get. One major difference with purchasing an REO property is that the bank does not have to comply with certain statutory disclosure laws pertaining to the property. It is up to the buyer to do their investigations and due diligence.
Prior to placing the properties on the market, the banks will do some repairs such as fixing leaks in roofs, plumbing leaks and mold remediation. Sometimes they will also do cosmetic repairs like painting and installing new flooring or carpet. It depends on the type of repair needed and how serious the damage.
Some banks will discount the price substantially in lieu of making the repairs to make it attractive enough to entice the buyer to purchase the property. They will just disclose the problem. The buyer can still do their inspections and get estimates of the repair costs. If the repair costs are prohibitive or other problems with the property are discovered, then the buyer has the right to cancel the contract during the contingency period and get their earnest money deposit returned.
Most REO's are in Poor Condition
Most REO properties need repairs. Many are total fixers. Their owners usually have not maintained the properties. The properties are vacant, and may have been that way for a
while. The prior owner may have even abandoned the property. Banks don't do much in the way of maintenance while the properties are on the market for sale because they have already taken substantial losses on the property.
If you are handy and can do some of the work yourself, an REO fixer is a great investment. Even if you are not handy, if you buy the property substantially below market, you can always hire someone else to do the work for you.
However, there are some REO's that are in fairly good condition and only need cosmetic repairs. Some are also in move in condition. Those properties are jewels. They are much harder to find because they sell quickly and at higher prices.
Buyers Can and Should Negotiate Contract Contingencies
Buyers can negotiate contract contingencies for inspections and loans just like with any other Maui real estate purchase transaction. Banks like the contingencies to be kept at a minimum and the shorter the better. They want to make sure the properties are selling quickly. Buyers should be aware of this matter at all times to avoid problems with the banks.
Multiple Offers
Because there are growing opportunities to purchase short sale and REO's in the Wailea, Makena and Kihei areas in all price ranges, you may find yourself in multiple offer situations, with other buyers competing for the same property.
If you are in a multiple offer situation, your Maui Real Estate Agent will advise you of this fact. There is no way of knowing how the bank will respond to offers. They could take the highest and best offer right off the bat, counter back to the highest offer only, or counter back to everyone.
The following tips will help giving your offer an edge
- Offer the highest amount you are comfortable with as long as it is close to, if not at or over asking price, providing the property is comparable to other Maui homes that have sold in the area. Have your Maui Real Estate Agent provide you with current Sales Reports. Banks are not negotiating on price too much because they are pricing the homes to sell at or below market value. Some banks won't accept any amounts less than 95% of the listing price.
- Offer cash and a quick closing whenever possible. Banks prefer cash offers because the buyer can close quickly without financing contingencies.
- Shorten or eliminate contract contingencies. Sometimes the banks will require that the buyers do their inspections upon acceptance. If you are really committed to purchasing the home, you might want to consider doing your inspection prior to acceptance or eliminating the physical inspection contingency entirely if you plan on tearing down the home or making major repairs to the home's system and replacing the roof.
- It is not recommended that you eliminate the loan and/or appraisal contingency. Instead, you can shorten the time period if you have already started you loan application and loan approval process and are pre-qualified or pre-approved. Be ahead of the game!
- Price matters to banks. It is common for REO properties to sell over the asking price in multiple offers because the bidders bid up the price. Don't get caught up in a bidding war. If the price makes sense to you, then go higher. If not, make your best offer. If you don't get the property, there will be another opportunity. It is a buyer's market right now even in Maui paradise.
There are many opportunities to purchase South Maui REO's and Maui short sales right now. Check with a local Wailea, Makena or Kihei real estate agent who can help you realizing your dream of owning Maui Real Estate.
If the properties don't sell, the bank basically buys them back, and they become bank owed properties. The bank now takes on the role of the seller. Banks list their properties with local Maui Real Estate Agents. The agents then market the properties in the Maui MLS, on the Internet and newspapers to potential buyers. The properties are often sold at listing price, and most recently, even above listing price.
REO's are good investments if you know how to buy them. So if you are lucky enough to find your dream oceanfront, ocean view or beachfront South Maui property, and it happens to be an REO, even better. Higher prices Maui Condos and homes are already on the market.
Making an Offer
If you are going to purchase a bank owned REO property, you should understand how the process works and what to expect. This will only help to make your offer stronger and one that the bank will accept.
Offers on REO's are made through a Maui Real Estate Agent. You can work with the listing agent or have your own agent represent you. The listing agent, who represents the bank, will present all offers to the bank.
Bank's Response Time
The bank will respond in writing. Banks work on their own schedule, so even if you put a response date and time in your offer, they may not keep to it. On average, it can take a week for a bank to respond. Be patient. Each bank handles their REO's differently. The banks are swamped right now with foreclosures, REO's, short sales, mortgage modifications and refinances. They are short staffed. If you don't hear back within a reasonable amount of time, you can make a decision if you want to keep waiting or find another property.
Properties are Sold in an as is Condition
REO's are sold in an "as is condition". Meaning that what you see is what you get. One major difference with purchasing an REO property is that the bank does not have to comply with certain statutory disclosure laws pertaining to the property. It is up to the buyer to do their investigations and due diligence.
Prior to placing the properties on the market, the banks will do some repairs such as fixing leaks in roofs, plumbing leaks and mold remediation. Sometimes they will also do cosmetic repairs like painting and installing new flooring or carpet. It depends on the type of repair needed and how serious the damage.
Some banks will discount the price substantially in lieu of making the repairs to make it attractive enough to entice the buyer to purchase the property. They will just disclose the problem. The buyer can still do their inspections and get estimates of the repair costs. If the repair costs are prohibitive or other problems with the property are discovered, then the buyer has the right to cancel the contract during the contingency period and get their earnest money deposit returned.
Most REO's are in Poor Condition
Most REO properties need repairs. Many are total fixers. Their owners usually have not maintained the properties. The properties are vacant, and may have been that way for a
If you are handy and can do some of the work yourself, an REO fixer is a great investment. Even if you are not handy, if you buy the property substantially below market, you can always hire someone else to do the work for you.
However, there are some REO's that are in fairly good condition and only need cosmetic repairs. Some are also in move in condition. Those properties are jewels. They are much harder to find because they sell quickly and at higher prices.
Buyers Can and Should Negotiate Contract Contingencies
Buyers can negotiate contract contingencies for inspections and loans just like with any other Maui real estate purchase transaction. Banks like the contingencies to be kept at a minimum and the shorter the better. They want to make sure the properties are selling quickly. Buyers should be aware of this matter at all times to avoid problems with the banks.
Multiple Offers
Because there are growing opportunities to purchase short sale and REO's in the Wailea, Makena and Kihei areas in all price ranges, you may find yourself in multiple offer situations, with other buyers competing for the same property.
If you are in a multiple offer situation, your Maui Real Estate Agent will advise you of this fact. There is no way of knowing how the bank will respond to offers. They could take the highest and best offer right off the bat, counter back to the highest offer only, or counter back to everyone.
The following tips will help giving your offer an edge
- Offer the highest amount you are comfortable with as long as it is close to, if not at or over asking price, providing the property is comparable to other Maui homes that have sold in the area. Have your Maui Real Estate Agent provide you with current Sales Reports. Banks are not negotiating on price too much because they are pricing the homes to sell at or below market value. Some banks won't accept any amounts less than 95% of the listing price.
- Offer cash and a quick closing whenever possible. Banks prefer cash offers because the buyer can close quickly without financing contingencies.
- Shorten or eliminate contract contingencies. Sometimes the banks will require that the buyers do their inspections upon acceptance. If you are really committed to purchasing the home, you might want to consider doing your inspection prior to acceptance or eliminating the physical inspection contingency entirely if you plan on tearing down the home or making major repairs to the home's system and replacing the roof.
- It is not recommended that you eliminate the loan and/or appraisal contingency. Instead, you can shorten the time period if you have already started you loan application and loan approval process and are pre-qualified or pre-approved. Be ahead of the game!
- Price matters to banks. It is common for REO properties to sell over the asking price in multiple offers because the bidders bid up the price. Don't get caught up in a bidding war. If the price makes sense to you, then go higher. If not, make your best offer. If you don't get the property, there will be another opportunity. It is a buyer's market right now even in Maui paradise.
There are many opportunities to purchase South Maui REO's and Maui short sales right now. Check with a local Wailea, Makena or Kihei real estate agent who can help you realizing your dream of owning Maui Real Estate.
Volker Weiss
Volker Weiss - Maui Realtor(R/S) specialist focusing on Papali at Wailea. Make your vacation last forever, check out Wailea Real Estate. For immediate help call: VW Real Estate - 2525 Omiko Place, Kihei, HI 96753 - (888) 572-6888
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