Bank-owned properties: What are they and where can I find them?

Whether you’re looking for a home to live in or use as an investment, you may come across a bank-owned property in your search. These properties can be listed for sale just like any other on-the-market home, but they aren’t owned by a homeowner — instead, as the name implies, they’re owned by a bank. Here are the basics to know, including how to find bank-owned properties.

What are bank-owned properties?

A home becomes a bank-owned property after the homeowner defaults on their mortgage and the lender forecloses. Bank-owned homes may also be referred to as real estate owned or REO homes, REO properties or simply REO. When you see a home with this designation for sale, it means a financial institution — not an individual homeowner — is selling the property.

The process by which a home becomes REO typically includes the following steps:

• A homeowner defaults on their mortgage
• The bank forecloses on the home
• The property is put on the market as a foreclosure or at auction but does not sell
• Ownership of the home is transferred to the bank, mortgage lender or servicer

Who buys bank-owned properties?

Anyone can buy a bank-owned property, but the buyer most likely to purchase one is someone hunting for a deal. Real estate investors especially view such distressed properties as an opportunity to put some money into the home and get more out via renting it to tenants or reselling it.

But before you go looking for one, keep in mind that these properties typically require plenty of work. After all, if the previous owner couldn’t keep up with mortgage payments, they likely couldn’t keep up with maintenance, either. Bringing things up to speed can be very costly: “For the casual or first-time purchaser, an REO purchase has very high risks for a smaller-than-imagined reward,” says Realtor Sam Olson, team lead of The Olson Group with RE/MAX Gold in Nevada.

How to find bank-owned properties

There are a number of ways to identify bank-owned properties available for purchase.

• Bank listings: Some banks offer their REO listings right on their websites. For example, Bank of America has an online hub featuring these types of homes for sale.
• Home-auction sites: Websites like Auction.com and HUDHomesUSA allow you to search for REO foreclosure listings relatively easily.
• Government websites: You can also find these properties on some federal-government websites, like the Department of the Treasury’s real property auctions page or the list of properties the Federal Deposit Insurance Corporation (FDIC) has taken over from failed banks.
• RealtyTrac: This website lists an inventory of homes for sale that includes bank-owned homes as well as foreclosures, pre-foreclosures and auction properties.
• Freddie Mac’s HomeSteps: HomeSteps is a Freddie Mac program that markets and sells REO homes. It’s one of the largest sellers of existing homes in the country.
• Fannie Mae’s HomePath: Similarly, the HomePath program from Fannie Mae offers buyers the opportunity to purchase foreclosed, forfeited or short sale properties.
• Local sheriff’s sales: In addition, county sheriff departments may periodically hold auctions of foreclosed properties. of the public may attend these auctions to bid on properties. Check the website for your local sheriff’s office to see about sales and auctions.
• Real estate agents and mortgage brokers: A local real estate agent or mortgage broker can often help identify properties in your area, too. Look for someone with extensive experience in REO deals — some may even specializes in such transactions.

How to buy bank-owned properties

Purchasing a bank-owned home includes many of the same steps as purchasing any other type of home — and just like any other home purchase, an experienced agent can help guide you through the process.

• Secure financing: Unless you plan to pay entirely in cash, purchasing an REO home will require getting approved for a mortgage loan. Not all lenders will finance REO purchases, however, so shop around to find the one who can best accommodate your needs.
• Research homes and submit an offer: Look at listings to identify an REO property that you want to purchase. Once you’ve found it, just like in any other home purchase, you’ll need to submit an offer. But unlike buying from a private seller, it can take awhile to get a response on an REO offer — they typically must be reviewed by multiple people or companies, which might take days or even weeks.
• Get an appraisal and inspection: Professional home appraisals and inspections are always important when you’re buying a home, but they’re especially critical for REO properties, which may be in need of substantial repairs. You want to make sure you have a full understanding of the property’s condition before agreeing to take it on.
• Conduct a title search: Banks typically clear the home’s title before they put it up for sale, but it’s still important not to skip this step with an REO purchase, to be sure there are no liens or other ownership claims that may impact the sale.

Pros and cons of buying bank-owned properties

There are advantages and drawbacks to consider before deciding to buy a REO property, including:

Pros of bank-owned properties

• Lower price: The most obvious upside is the potential to get the home for much less than you’d spend on a non-REO sale.
• Long-term earning potential: If you find a good deal and are able to get the property in pristine condition, you may be able to reap the benefits by flipping it for a profit or earning rental income from tenants.

Cons of bank-owned properties

• No chance of concessions: In a traditional home sale, a seller might give a buyer a credit or concession to cover the cost of something that needs to be fixed. That is not the case in a bank-owned transaction. “Most banks will allow inspections but will not provide any assistance in repairs, which can add up quickly,” says Olson.
• Repair costs: After you settle on a price, get ready for more expenses once you start the necessary renovations and repairs.
• Longer timeline: Multiple parties need to approve an REO deal, so the transaction will likely take longer to close than it would if you were dealing with an individual seller.

Bottom line

While a bank-owned property can present an opportunity to become a homeowner without paying market prices, or to make a lucrative investment, this type of purchase should be considered carefully. Often bank-owned properties require significant repairs, which can be very costly. Before proceeding with the purchase of a bank-owned home, be sure to do your due diligence to ensure you’re making a financially sound decision.

FAQs

• How do you find out if a house is bank-owned?
  There are various ways to find out whether a house is bank-owned. First, look for the REO designation on the listing. If it’s not there but you still suspect it might be the case, ask your real estate agent to find out more about the property. You can also search for the address on RealtyTrac or other websites that list bank-owned sales.
• Can you negotiate the price on a bank-owned home?
  Maybe — it is often possible to negotiate the price on a bank-owned home. The central goal for banks and lenders is to get the home sold, so they may be willing to consider all offers, even if they’re below asking price. But whether the price is open to negotiation may vary from one listing to the next.