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Making Repairs on Bank Owned Homes

Foreclosure Repair Concept

Banked owned homes (REOs) are often sold at a high discount. At times these properties may need some repairs, remodeling or even complete rehabilitation. Because of the amount of discounting, many buyers are more than willing to either hire someone or do the work themselves.

How to Estimate Repair Costs on Bank Owned Homes?

Unless the buyer has experience in this area, it may be a good idea to bring a contractor to the property inspection. Even if they plan to do the work yourself, a skilled repairman or contractor will have a more exact estimation of the true cost of the repairs and can offer the buyer assistance.

Will the Bank Pay for any Repairs?

Not usually. The REO bank is focusing on recouping their losses caused by the foreclosure. They do not want to spend extra dollars just to clear their inventory. Typically bank owned homes are sold in “As Is” condition with no warranties or even disclosures.

There are, however, grants and loans available that can help with repair costs. For example, FHA services loans that allow buyers to wrap the cost of the repairs into the mortgage.

Can you Take Possession Before the Closing in Order to Start Making Repairs?

Most owners, including banks, will be unwilling to allow the buyer to begin repairing a bank owned home before the closing date. It may also be in their best interest to wait as well. If for some unseen reason the purchase falls through, any invested time and money will be lost.

It is best to wait until after the closing to begin REO repairs. Meanwhile, while the buyer waits, they can develop a practical plan of action and line up their contractors.

What if the Mortgage Company Requires the Completion of Some Repairs Before Closing?

There are some loan programs out there that require repairs be completed to qualify for financing. When this happens, the seller should pay for and complete the repairs. In most cases, the repairs will total less than $500.

Negotiating Repairs on Bank Owned Homes

As mentioned above, lenders are typically unwilling to do any work on a repossessed home. That does not mean, however, that they will not negotiate the purchase price.

These banks would like nothing more than to clear their inventory of homes and focus on lending out their money. Rather than asking the bank to complete the repairs, the buyer should instead factor the cost of the repairs into their offer.

Bank owned homes should be priced at or below the market value after taking into consideration the present condition of the home. If this is the case, the selling agent should have adjusted for the repair costs already. Frequently, however, buyers and investors come across a REO that is priced too high. When submitting an offer on this property, also include a letter that provides comparable sales and estimates of repair costs as justification for the lower offer.

Many investors will tell you that investing in fixer upper homes can be a very profitable decision. The key here is to correctly estimate the repairs and discern whether or not to seek a lower asking price.

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