Bank Owned

This is part 1 in a series describing different types of sellers and transactions in the Las Vegas Area market.

REO is a type of seller.

REO means “Real Estate Owned” or also known as “Foreclosure” or” Bank Owned”

REO is CURRENTLY the #1 sales category in the Las Vegas Valley and #2 Listing Category

Main reasons people are attracted to an REO purchase:

1. It is more of a “sure thing” than a short sale.  (Only 1 in approximately 15 short sales currently close)
2. It takes less time contract to close than new construction built from scratch
3. REO is priced cheaper than most other listings

A Few Pitfalls of an REO purchase:

• Many times sellers will not pay for lender required repairs
• Deferred maintenance issues could make house a “money pit”
• Homes are sold “as-is” and no Seller’s Real Property Disclosure (SRPD) is given.  Buyers must waive their NRS CH 113 Rights
• Title issues can delay closing

Current REO Climate & Purchase Procedures and Variations from Typical Transactions:

Pre-Approval Process for Financed Purchases:  Sometimes the seller wants to see approval on THEIR letterhead.  When required to do so per seller’s instructions, make sure you are prepared to do this.  You ARE NOT required to use their lender, just get pre-approved by them.

Viewing homes with your buyer’s agent can be an eye opening experience.  What you will see and experience can be emotionally disturbing. Sometimes walking into an environmental hazard (that isn’t disclosed prior to entering) can have physical reactions and consequences.  You may encounter mold, smells that are hard to describe, disrepair, pest infestations, dirty conditions AND MORE!  I have even encountered people living in vacant properties (commonly known as “squatters”) that are not supposed to be there.   It isn’t uncommon to have a key stolen from a lockbox here or there in a very attractive property.  Many time utilities are not on so you are recommended to dress appropriately for weather conditions while viewing properties.  If you are pregnant, have severe allergies or if you have children, I DO NOT recommended you bring them to REO showings just because of the potential hazards that exist!

The offer submission process is gut wrenching.  You can expect an answer to your offer anywhere from a couple of days to sometimes almost a month.  Sometimes you won’t even hear from them AT ALL and the property simply goes under contract in the MLS.  Right now multiple offers are VERY VERY common with extremely low inventory.  Most of the times you will be notified when you are in a multiple offer situation.  Sometimes that notification is over the phone, in email or an addendum in writing.  It is imperative that you follow the multiple offer guidelines that were set forth in writing!

Once you have an acceptance the sellers (more often than not) execute the contract with a “counter offer” or addendum. These addendums or counter offers must be reviewed carefully (preferably by an attorney) as many of the terms and conditions are changed from the original contract.  These addendums or counter offers are written by bank legal departments and often are complex legal contracts.

The contract is not fully executed without all signatures.  The signatures for REO are often done by an authorizing party on behalf of the bank termed an “asset manager”.  This process can sometimes be less than a day, sometimes be more than a month.

Common Problems during due diligence on an REO property:

Home Inspections:  There seems to be a lot of deferred maintenance (previous owner did not do preventative maintenance on the home) so there can be plenty of structural or mechanical problems associated with the deferred maintenance

Appraisal:  Deferred maintenance issues may be flagged by an appraiser which, the  lender, in turn may REQUIRE repairs to be completed prior to funding of the loan.  Sometimes the seller in an REO transaction will correct the defects, sometimes they won’t.  Under the current climate with REO being an extreme seller’s market and prices being run up, sellers may require you to accept the contract and throw out the appraisal contingency.  This means that you must make up for the difference between purchase price and appraisal price.

!!!Final Walk Through Issues: Since the home is (more than likely being conveyed as-is) you may have to waive the walk through inspection.  YOU SHOULD STILL WALK THROUGH to make sure the property is in the same condition the day you wrote the contract.  While I make all efforts to renegotiate issues that arise, odds are the REO seller will not correct the issues!

!!! Title issues:  most common REO title issues currently are HOA being in collections or a title transfer not being recorded yet!  This can delay closing!

!!! Burglary/Vandalism During Escow Period:  I can’t say this is a “common” occurrence but IT DOES HAPPEN!  Many times the REO seller will not correct the issues.

Read more about the Las Vegas REO process here

Find out about more seller/transaction categories here.