Step 5
I would like to discuss bank owned homes with you. At this time about 13% of the homes on the market are bank owned. You’ve seen REO (real estate owned) on many homes in the last couple of years. These homes have been repossessed from the owner by the bank. Sometimes these homes were on the market previously as a short sale but didn’t sell for whatever reason. So now the bank owns the home.
Many banks will go thru an extensive renovation of a home before putting it on the market. Because of either bad treatment by the previous owners or vandalism while the home sits vacant for months, the bank needs to “fix it up”. Please remember, no one from the bank has ever lived in this home. The bank is relying most times on the REO listing agent to be in charge of the rehab work. Tip #1 – always hire the best home inspector you can find to inspect this home. Sometimes you will need to hire other service providers to inspect things like the roof, plumbing and air conditioner. This can be very costly. Once you are in escrow and you are conducting these inspections, you must understand these inspections are for your knowledge only. The bank has already done all the improvements they intend to do. You are buying the house “as-is” so unless there is something majorly wrong with the house – the bank won’t take care of it. In fact, many times you won’t even get a termite report from the bank. Oh and by the way, some of these REO homes do not have stoves, dishwashers and other appliances – that’s for you to buy.
Another thing to keep in mind, and I’m focusing on the Inland Empire when I say this. In almost all cases of bank owned homes, the bank has lost money, somewhere in the range of 50-60% of the amount of the loan. Well I’m sure you don’t feel sorry for them but it does affect you if you want to buy a bank owned home. Let’s say a 3 bedroom home is foreclosed on in Rancho Cucamonga. The loan on it was $450,000. In today’s market the house is now worth $250,000. That’s a $200,000 loss for the bank. And for this case we aren’t going to figure how much money it takes to fix up the house for sale. So one night you can’t sleep and you stay up watching TV. There is a show on how to buy bank foreclosures at 20% off the list price. Can it be true? No. Maybe you can do this in Barstow but not in Rancho Cucamonga. There are way too many Buyers in today’s market and many are cash buyers. This bank owned home will sell for market value.
I can’t finish this post until I talk about my all time favorite Buyer, the Flipper. Lately busloads of “Flippers” have been roaming the streets of the IE looking at REO and foreclosed homes to buy, fix up and sell – Flip! The only people making money here are the ones conducting the tours and the bus drivers. If you want to “flip” a house, go buy one for all cash on the courthouse steps and rehab it, then sell it. If you buy a bank owned home at market value and expect to fix it up and sell it, well my advice is forget about it…. It sounds like a fun way to make money but in the long run this is not an amateur sport. There are large corporations out there buying up homes in bulk on the court house steps and flipping them, this is their business not a weekend project.
