When a bank takes back a property as a result of foreclosure, it's called an REO (real estate owned) property. Since banks aren't in the business of owning property, it's possible to buy REO properties for a discount.
Many factors will affect the price: Location, property condition and interest in the property all come into play. If you understand the balance of these factors, you can successfully negotiate with lenders to accept your offer.
What Are The Advantages Of Buying Bank-Owned Properties /REO Deals?
RealtyTrac.com including in one of their investing guides 5 great advantages for investor to consider buying REO properties. Here is an excerpt from their guide:
“For real estate investors and home buyers, bank-owned properties and REOs offer opportunities that are not available in the pre-foreclosure and auction phase of the foreclosure process. Buying bank-owned real estate offers the foreclosure buyer many advantages:
- Buying bank-owned properties involves less risk and less competition.
- Bank-owned properties are usually sold at below-market prices with great terms like low down payments and low interest rates.
- Since the seller of REO homes is also the lender, you can negotiate with the bank to have them pay for all or some of the closing costs.
Any Disadvantages Of Buying Bank-Owned Properties/REO Homes?
Sometimes they may require you hold the property of a minimum amount of time like 90 days before you flip for profit or sell to another investor. I personally have had experience with Citibank and Bank of America asset managers including that in the purchase agreement contract.
Insight – Bank's Point of View
In any negotiation, you must know what the other party is thinking and why. Play to their fears, and your negotiation will have a greater chance of success.When a bank has to take back a property, they want to sell it as soon as possible because physical “assets” look like liabilities on a bank's books. At the same time, the bank wants to make as much money as possible on the sale of the property to recoup the loss they experienced in the foreclosure.