How to Buy a Bank Owned Property

In this market I’ve helped banks sell and buyers buy roughly 20 bank owned properties, and some of them have been pretty rough.  I’m in contract now on a bank owned condo in San Rafael.  That should be my fourth bank owned sale this year to date.  So I have some experience selling bank owned properties in today’s market.

When buying a bank owned property there are lots of things to keep in mind, a few of which I will list below.  Keep in mind this list is not comprehensive, and that every sale and property is different.  Distressed properties are a reality in today’s market, and as much as they shouldn’t be dismissed they also should not be exclusively sought after.  Buyers can get lots of great deals in today’s market, with short sale, divorce sales, estate sales and even regular unencumbered sales.

1)      The bank knows little to nothing about the property they are selling.  Your best source for information on the property will be the realtor representing the bank, who is obligated to disclose any material facts that affect the value of the home.  That being said, buyers should seek out neighbors for property information, and sometimes even the previous owner.  Last year I tracked down the previous owner of a bank owned property here in San Rafael and obtained some very useful information for my buyers who purchased the home.  Buyers should also have properties thoroughly inspected during their contingency period.

2)      Contrary to popular belief, banks are not giving properties away.  That being said effective negotiating strategies can yield significant price reductions.  Next week I’ll close a bank-owned condo in Sonoma County for a buyer that is close to 15 percent under the current asking price.  That’s a pretty good reduction by any measure.

3)      Contingency periods are passive.  In our CAR (California Association of Realtors) contract the contingencies are active, meaning the buyers must release the contingencies when the periods are up.  If they don’t the contingencies remain in effect.  Bank owned addendums supersede the CAR contract, and contingencies are passive, meaning that at the end of a contingency period the contingencies will be released if they are not extended.  If a buyer lets the contingency period pass and they want to back out of the contract, they may lose their earnest money deposit.

4)       Price reductions should be negotiated initially.  In some sales it’s possible to negotiate price reductions after an inspection contingency period, especially when there are health and safety issues that were not known prior to going into contract. Don’t count on the bank reducing its price or making other concessions after an inspection period.  In general it’s going to be take it or leave it.

5)      Bank-owned sales are a reality in our market, but they won’t be around forever at this historic pace.  There have been a ton of default notices issued this year, meaning there’s definitely going to be more bank owned properties coming on the market in the next few months, but my impression is that the defaults seem to have begun slowing down.  Sorry, I offer no emperical data to back that up, but if a buyer is looking for a bank-owed bargain, now would seem to be a very good time.

One day in the foreseeable future the amount of distressed properties on the market will begin to dissipate.  In 2011 however these remain very hot properties.  Get them while their hot, or not.  But make sure you know what you are getting before you purchase.