Here on the Central Oregon Coast at this writing there are 45 active listings which fall in the category of distressed or bank owned (REO) properties. Typically these are homes on which the lender has foreclosed and is in title or ownership. This is about 3% of our broker listed inventory.
While the Oregon Coast is seeing a much lower ratio of bank-owned to regular inventory than some areas of the US, it is still a significant challenge for Buyers as well as the banks. Simply put, banks do not want to own real estate. For this reason the bank, as Seller, attempts to market the REO property through a licensed broker for as much as possible to cover the cost of the foreclosed loan.
Each lender has a different approach in calculating what their bottom line may be. The listing usually comes on the market at a fair market price suggested by the Realtor and agreed upon by the bank. In my recent experience, I have been able to put Buyer/Clients in homes for 60% of the price the home had been listed at prior to going REO.
Sounds good, right? Well, it is — and can be a terrific way to obtain “instant equity” for wise Buyers. Here are the elements to consider:
Be prepared with your financing:
- To be in the best negotiating position the Buyer should come to the table with a solid loan prequalification letter in hand to submit with the offer.
Banks will not make or negotiate for repairs.
- Offers should be subject to inspections at Buyer’s expense including structural, heating, electrical, plumbing and sometimes septic and well tests.
- In terms of Buyer investment these tests are really required insurance against defects since the bank has no duty to disclose. Costs can run up to $1,000 if all the tests listed above are completed.
- If repairs are indicated the Buyer can then re-negotiate through their Buyer’s Broker a new offering price to reflect the repairs.
Carefully Prepare for the Inspection:
- Since most banks winterize their REO properties this means that water, power and heat are shut off.
- Showings can easily be done by flashlight but it’s another story when the inspector(s) and appraisers arrive. They will need to test the function of all the mechanical features of the home.
- Getting the utilities reconnected for inspections is a major task and banks are more inclined to undertake this effort when they’ve received a really solid offer.
- Rely on your broker to run interference with the bank and make sure everything is lined up for inspection.
At the end of the day this could be your chance to make a great deal on an Oregon Coast home.
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