Making an Offer on a House Owned by Bank

A banked owned property is a repossessed property that gone through the foreclosure and auction process and now is owned by the lender. Many of these properties are being sold at a substantial discount.

Buying a banked owned home (REO) can save homeowners and investors thousands. Once you have found a cheap bank owned property, how do you go about making a home purchase offer? How to buy bank owned homes? Are there any other tips to successfully submit offers on bank owned real estate?

Preparing to Make an Offer on a Bank Owned REO Property

In almost all instances, REO properties are going to be listed with a real estate agent. Rarely are bank repossessed properties sold in-house. This means that putting an offer on a REO property is basically the same process as all other listed properties:

• Find a Bank Owned House. This can be with the help of a real estate agent or via an online database.
• Submit an Offer with an Earnest Money Deposit. Making an offer on a home must be in written form. Generally your real estate agent will submit to the listing agent a form called an "Offer to Purchase Real Estate." They will then present it to the seller (bank). If you do not have a real estate agent, the listing agent can submit the offer directly.
• Provide Proof of Funds. If you are going to be getting a mortgage, the proof of funds will be in the form of a pre-approval notice. If you are paying cash, your bank should provide a letter or bank statement proving that the funds are available to cover the purchase price. The proof of funds should be submitted with your offer.
• Acceptance or Counter? If the bank accepts your offer, then it is time to begin the closing process with a title or escrow company. If the bank rejects your offer, you can either submit a higher offer or one with fewer contingencies (such as having the seller pay closing costs) or you can continue shopping.

How Long Does it Take to Get an Answer?

Banks are notoriously slow in responding to offers. You could hear a response within just a few days or up to a few months. Waiting can be very frustrating. It is not unreasonable to ask your real estate agent to make frequent contact with either the lender or the lender’s agent in order to keep the ball rolling.

If you are submitting multiple offers on multiple properties and none of them are being accepted, your price may be below market value in comparison with other offers. Ask your agent to prepare a Comparative Market Analysis (CMA) to help you understand the market better.

Why Do I Have to Provide Proof of Funds or a Pre-Approval Letter?

Without some sort of proof of funds, it is rare that an offer will be accepted by the listing agent, let alone submitted to the bank/owner. There are two main reasons:

Reason #1: Owners (including banks) do not want to tie up the property for weeks or even months only to find out that the buyer cannot get a bank loan – especially in active markets.

Reason #2: Proof of Funds indicates to the Seller that you are serious about this offer and that you are prepared and ready to close. It also speeds up the closing process.

If the Offer is Accepted, Will I Receive a Signed Purchase Agreement?

Yes, if the bank accepts your offer, you will receive your original offer which has been signed and dated by a representative of the bank. Double check your offer to make sure that they did not strike out any contingencies or added any other terms, restrictions or qualifications.

How Much Earnest Money Must be Submitted?

There is no set rule for how much earnest money must be submitted with an offer. Typically "good faith" deposits are between 1 – 3% of the purchase price. Like the proof of funds, an earnest money deposit indicates your level of seriousness and commitment. The larger the earnest money deposit, the greater the chance that the bank will consider your offer.

What Form do I Use to Make an Offer on a House?

Offers on bank owned properties are typically prepared and submitted by a licensed real estate agent who has access to the standardized National Association of REALTORS© forms.

If you are submitting an offer directly to the bank, without the assistance of a real estate agent, you will need to locate a form that complies with state and federal laws. There are online resources that can help.

Is it Better to Offer Cash?

Cash offers are more appealing to all sellers, including banks. Cash offers close much more quickly than ones contingent on financing. Often lower cash offers are accepted above higher offers that are contingent on financing. A cash offer is just that - cash. The cash must be immediately available rather than being tied up in stocks, bonds, retirement accounts or contingent on the sale of another property.

What Happens if There Are Multiple Offers for a Property?

At times, there may be simultaneous offers on the same property within the span of just a few days. At times the lender will simply accept the highest offer that has the least amount of contingencies. In other instances they may reject all but the top two or three offers and then request these buyers to present their "highest and best offer" as a counter. In many active markets, it is not uncommon to offer more than the listing price.

Buying bank owned homes can be a great deal – whether you plan to live in the property, rent it out or flip it for a higher price. Buyers should not be intimidated when making offers on a REO. These properties come with clear title and are free of other liens and encumbrances. When the time comes to buy your bank owned foreclosed property, just make sure you are prepared to work with the bank to get the best deal possible.