Bank owned homes are also referred to as foreclosures, lender owned or REO – Real Estate Owned properties. Bank owned properties have been taken back by the mortgage lender because of non-payment of a mortgage.
Bank owned properties are very different from traditional home sales. Buyers often think that these properties are ideal because they feel they can “get a deal.” But buying a bank owned property can be more stressful than buying a traditional home and may have some serious disadvantages for the buyer. Here’s why:
- Bank owned homes are sold in “AS IS” condition. Banks will NOT make any repairs or alterations to the property prior to the purchase.
- Bank owned properties are still priced at market value and may only be under valued if there repair or structural issues that affect the home’s value.
- Banks usually have no information about the specifics of the home.
- Home inspections may be difficult because utilities are usually shut off. Buyers may do inspections, but getting the bank to get the utilities turned on can be a long and frustrating process.
- Negotiations usually take longer – at least 2-3 business days – and sometimes up to 2 weeks or more.
- The Purchase and Sale contract favors the bank and covers their interests; contracts CANNOT be altered or negotiated.
- The buyer has absolutely no control in the process – the bank holds all of the control and doesn’t operate on the buyer’s timeline.
- If a closing is extended by the buyers, the bank usually charges a per diem fee.
- Bank owned homes can be difficult to mortgage and may not qualify for VA or FHA mortgages.