Once a property is fully foreclosed by a bank or lender and listed for sale, it is commonly referred to as a REO (Real Estate Owned) listing. Most bank owned properties are listed with local real estate agents. Good buys are available. They require research, preparation, patience & persistence. Buying a bank owned home isn’t easy and it’s not without risk. The list below should be useful if you decide to take advantage of today’s unique REO buying opportunities:

1. Choose a real estate agent who is familiar with REO practices to help you navigate the process, confirm property values, and negotiate terms. (My contact info is at the top of this page.)

2. Get pre-approved by a qualified lender. The banks have already been burned — why would they consider your offer without written lender approval or proof of funds?

3. It’s “buyer beware,” folks. Most bank owned homes are exempt from typical seller disclosures and are sold “as is.” Don’t expect banks to pay for repairs or upgrades, although it never hurts to ask. Lenders will allow you to get all the inspections you want, at your expense, and your agent can use the results for negotiating terms with the bank. If substantial work needs to be done, have a licensed contractor take a look before you write your offer or have your agent negotiate an inspection contingency.

4. Making an offer: Your agent should find out if there are any existing inspection reports on file, what work (if any) the bank will agree to, and if the bank requires a special purchase agreement form or other special requirements. (Many banks will only respond to offers written on their own forms; CountryWide requires buyers to be pre-approved by CountryWide, even if you’re going to use another lender.)

5. Pricing your offer: Most REO properties are priced to sell and will likely sell within 15% of the list price. I’ve seen better properties command a bidding war, selling for more than asking price. If you lowball your offer, don’t be surprised if the bank doesn’t respond at all.

6. Once you know what you want and can afford, be prepared to write several offers before you get one accepted. Asset management companies, the third party hired by lenders to liquidate foreclosed properties, are typically overwhelmed and routinely take longer than expected to respond. Unlike traditional sellers, lenders do not review files or consider offers on weekends and holidays.

7. Financing: For qualified buyer and investors, exploring financing options with the REO lender may produce a better-than-market interest rate, reduced down payment amount, or other financially favorable outcome. (You’ll still need a prequalification letter from any lender just to get to the bargaining table.)

8. REO sales are void of emotion for the seller. They make their own rules. Decisions don’t have to makes sense to anyone but the bank. If you (and your agent) understand this basic principle, you might just be a good candidate to buy a bank owned home.

Thanks to Michelle Brown of Financial Title for the original list.

Keeping up with the Joneses effects investment decisions, according to a couple of Stanford U. profs. Fear of missing out seems to be a driving factor. We don’t want to be poor when everyone around us is rich.

Making the wrong decision is not as bad as not making the right one. After all, when the bubble bursts, everyone loses together.

This certainly explains all the new Rich Dad fans vying to be landlords during the real estate boom. Now that foreclosures and tighter credit have driven prices so low, where are they? Waiting for the market to turn again, of course.

Meanwhile, the savvy investors are quietly picking up bargains every day.

Breaking News from the New York Times

“A word to the wise: The great Los Angeles housing boom is over. The real estate price explosion in southern California, which sparked a national boom still continuing elsewhere, has stopped. The bubble that everyone said could never burst has burst. All over Los Angeles and Orange County, home buyers can buy a property for less than it would have cost a year ago, although there are exceptions. Buyers who can pay cash can almost steal houses and real estate. The days when ordinary citizens got rich from buying houses are gone, at least for the time being and at least in southern California. But what a bubble it was. ”

Did I mention that this article was originally published August 17, 1981. That’s more than a quarter century ago! Bet you wish you bought then!

More snippits from the article:

“The boom went on for such a long time because the economics were right. . . .Figure it out: mortgages were less than 10 percent for almost all of that decade, under 7 percent if you count the tax features, and houses were increasing in value all over the West Side of Los Angeles by a good 20 percent a year on a compounded basis. The banks, savings and loan institutions and and the economy generally were paying families to live in the better neighborhoods of Los Angeles. . . .This cheap credit fueled the takeoff of the boom. As prices rose to stratospheric levels, the price history itself fed the boom. . . .Even when mortgage interest rates shot up to 13 and 14 percent, the houses were still going up 20 percent a year, so who cared?”

Then the crisis came. The Fed took on inflation and interest rates hit 18%.

“Buyers became fewer and more choosy. Houses that once sold in a week stood unsold for a year. As demand fell, prices stopped rising, then began to fall. . . .Suddenly buyers decide to stay with their old houses and their rentals. Demand declines and prices slide a little more. Families who thought they were rich from their houses find that they simply cannot sell except at an immense discount. And the air goes out of the bubble. . . .”

“Of course, Los Angeles is still a desirable place to live, the economy is still relatively strong and no one seriously contemplates a major crash. And, of course, all bubbles, in every commodity, always end some time.”

So, it’s a buyers market again. What are you going to do about it?

Benjamin J. Stein’s entire article, “Housing Boom Goes Bust in Los Angeles,” was recently republished by the New York Times. It’s good to have perspective.

Abandoned properties may present more than just an eyesore in a neighborhood. They can be a breeding ground for mosquitoes and an attractive nuisance to transients and vandals.

Some reports relate an increase in West Nile Virus outbreaks to the sharp increase in forclosures. Realtors have been notified to report “green” swimming pools to local mosquito and vector control agencies. The green color comes from organic matter or bacterial growth. Any standing water can become a mosquito breeding ground.

Neighbors would do well to heed this advise, too. You know the neglected homes in your area. Since I’ve been hip to the West Nile Virus warning, I’ve noticed standing water even in the yards of inhabited homes — primarily renters and our elderly neighbors.

Standing water is defined as any water standing for seven or more days. Common sources are trash cans, bird baths, wading pools, toys, and rain gutters. Keep an eye out. You’ll be surprised where water will collect.

If you notice standing water, let the residents know about the mosquito issue. They’ll probably thank you. After all, they don’t want to be bitten either.