5 Tips for Buying a Bank Owned Home

avatarthumbnail.jpgAs of last Tuesday, one in nine of the homes for sale in the Phoenix real estate market (according to the Arizona Regional MLS) was a bank-owned home. If properly priced – either at or below current market rates – many of these REO properties will see multiple offers before a final buyer is selected.

Though some banks are becoming more proactive in making borderline properties sellable – borderline meaning too trashed to ask market value but not trashed enough to offer at near wholesale pricing – bank-owned homes still may not be for everyone.

Here are 5 things to keep in mind if you’re thinking of buying a bank-owned home:

1) Prepare for multiple offers. On one bank-owned home a client of mine tried to buy, there were nine offers the first day. She didn’t get that one. On another REO home, my buyer was one of three offers. We did get that house. On a third house back in March my buyers and I were told there were multiple offers. Still not sure if there were but that’s another story for another time.

If the house is priced well, you’re not going to be the only offer on the property. Which is why you need to …

2) Make your first offer your final and best offer. In a multiple offer situation, at some point the lender (or the lender’s listing agent) is going to ask you for your final and best offer. Knowing that call is almost certain to come,  make your initial offer your final and best. If you get the house, great. If not, you know you made the best offer you could make in an effort to buy.

On the middle example above the lender’s agent asked us for our final and best offer. We told the agent that we already had submitted our final and best. My buyer got the house and will be moving in within the next couple of weeks.

Knowing the game helps.

3) Be prepared for the lender addendums. These vary from Countryide’s 18-page mosnter to a few pages from most other lenders. All are different but all essentially tell you that you’re purchasing the home as-is. Sometimes the addendum also will set a date by which the sale must close which can be different than the date in the contract.

You don’t have to sign these addendums unless, of course, you want to buy the house.

4)  Get a home inspection. If your offer was written on the AAR Purchase Contract, you have 10 days to complete your inspections and other due diligence. Take advantage of this time frame and hire a professional home inspector to check the property for you. The lender likely will not make any repairs but at least you know what you’re up against.

If possible, try and be present at the end of the inspection so the inspector can take you through the house and discuss what they’ve found. Everything in an inspection report sounds severe but a good inspector will help you understand what issues are serious and which are fairly common.

5) Know your lender. Most lender addendums have a sentence adding a per-day fee if you’re unable to close on the house on time. And most often the delays take place because a lender’s unable to get the loan documents to the title company on time. This isn’t the time to use your cousin for your loan, not unless he’s been established in the business for a significant period of time.

Get a reputable lender and stay on top of them to make sure your loan is moving ahead toward an on-time close.

Have additional questions not answered here? Contact me through the form on the right or via e-mail and I’ll be happy to help!

[tags]Phoenix real estate, bank owned homes[/tags]

Jonathan Dalton

Jonathan Dalton is a 40-plus-year resident of the Valley and has been helping folks buy and sell homes since 2004. He can be reached at 602-502-9693 or info at allphoenixrealestate.com.


  • Jim Little 10 years ago

    Jonathan, Let us not forget late closings because the REO seller can’t/won’t act in a timely manner, reviewing and returning docs.
    This, coupled with the fact that the REO entity is shielded from direct contact with both agents and the escrow company leads to unnecessary frustrations and delays.

  • Jonathan Dalton 10 years ago

    I haven’t had that one yet, Jim … and I know I’ve been lucky. 🙂

  • Kay Kostalnick 10 years ago

    Don’t forget to ask the REO Seller for a home warranty. Many banks will include them when asked, though they will not volunteer that info :-). If not, be sure the buyers get one on their own. It will not help with the items found in the inspection, but it could come in handy when/if problems develop in the first year.

  • Allen Blaker 9 years ago

    Having inspected about 100 REO’s this year so far, I can tell you that most banks have a budget for performing repairs, if requested. Banks are attempting to sell their REO’s “as is” but AZ real estate law does not allow the sale of a property that is not “habitable”. this means that the house must be able to receive a certificat of occupancy from the local municipal authority. A “C of O” requires heating and cooling to be working, indoor plumbing to be working, no moisture entry, no major structural, health, safety or other serious environmental problems. Attorneys love to argue this stuff and the banks have lots of expensive attorneys, but the bottom line is that the building inspection process and the repair contingency in the contract is escential. Requests for repairs should always me made and I find most of the time, if the offer is valid, the bank does perform repairs.

  • Ken B 9 years ago

    I have a question. The bank has accepted my offer on an “AS IS” bank owned property. The appraiser appraised the property noting that the value was reflective of the property that had the pool in operating condition and a broken window of the patio door replaced. Currently neither are fixed. My lender (FHA) requests these items be in operating condition before they will lend the $.

    My question is who is responsible to pay for these items ?? before the deal can closes at the end of escrow???

  • Jonathan Dalton 9 years ago

    Hi, Ken … the answer’s going to sound like a copout, but it depends entirely on how your contract is written – there is no one pat answer.

    Some lenders will make repairs if they’re required for a loan to be completed, others will not.

    If you used an agent, check with your agent as they ought to be able to find a solution. If you purchased on your own, you may want to have a real estate attorney review the bank’s addendum and your contract with you to see what your options are.

  • Philippines properties for sale 8 years ago

    I’ve been looking for topics as interesting as this. Thanks for such a great article to share with.I find it very helpful especially for the first time buyers..Thanks for sharing!

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