Bank Owned Properties are properties that have been foreclosed upon. The bank has completed the costly foreclosure process and either auctioned or seized the property. Often times the properties set abandoned for many months during the process and vacancy invites vandalism and damage to the property. The properties usually receive no level of maintenance.
Once the bank finally lists the property, they will normally list with one of a number of REO agents in the area that either they have worked with or that they have contacted through REO websites (which require submission on the agents part and sometimes money to subscribe). At this point the property is not in good shape. The seller may have stripped the property or allowed the property to decline from vacancy and lack of maintenance.
The Listing Agent may bring in clean up crews in order to get the property in as good of a condition as is reasonable in order to list the property. Often times they must do this at their own expense and may not get this money back. Not all agents will do this and some go on the market in their present condition. Until that occurs, the property sets with overgrown weeds, grass and in a generally unloved condition.
Sometimes the property gets listed for a below market value in order to move it quickly and sometimes it gets listed at market value or above. In the latter case, it will set on the market for perhaps a year or more until the Bank/agent gets the price right.
REO agents generally put one photo up of the property. The do no marketing other than listing it on the MLS and putting up a sign. The commissions and listing agreements on REOs place the listing agent in a precarious position of having to accept liabilities and some expenses in maintaining the listing. With commissions often times below industry standards the agents have little choice in providing a higher standard for these properties. The best strategy on their part is to help the Bank get the price correct in order to move the property. The Bank will sometimes dictate what the price will be and therefore handicap the agent further.
In addition to handicapping the listing agent, the Bank uses their legal resources to basically take away most of the rights of the buyer in California. They dictate most terms. The property is sold "AS IS" with no disclosures (the Bank has not occupied the property). Typically there is a long counter offer removing most of the contractual safeguards for the Buyer in the State of California. Often times the Bank will specify and demand a certain Title Company be used out of your local area. Many times the title and escrow fees are substantially more. No negotiation is allowed.
The Banks do not foster good business nor operate under the preview of the California Department of Real Estate. In most cases, they are out of state entities with hugh legal resources to out maneuver any individual and I would guess the State of California DRE.
It would appear to this Realtor that some regulation of these counter offers and protection of the Buyer's rights would need to be reviewed and maintained by the State of California DRE.
The resulting set of legal issues with REOs leaves me with an overall hesitancy to recommend purchasing or dealing with Bank Owned Properties or REO agents. This is not meant to be inflammatory against REO agents and as mentioned above, I have sighted the same legal abuse that occurrs from these Banks with regards to REO Agents.
Banks need to work with sellers, loan officers, work out specialists and Realtors to provide sellers with options to avoid foreclosure. Foreclosure is a negataive influence on the real estate market trend in every concievable way. It does not benefit the Bank, the seller or the buyer many times. If a foreclosure does occur, the Bank should adher to the same law that have been developed within the state the property is located in for the protection of all within the real estate transaction. They should not abuse the REO agent nor the consumer.
If I have a client that is enterested in REOs, I counsel them on the process and make sure that they fully understand the rights they will be giving up and that we will be going through a very negative experience. If the house is worth it, we can do it however. The abusive power of the Banks is not a pleasant experience.
Aloha From Kauai - Thanks For your Post . . . . I believe you've identified certain necessary facts that are often overlooked. Good Insightful information. Hope to read more. Keep the faith..... this cycle term will turn around sooner than you think. JAMES PYCHA
Good post, and great points. As I deal with banks more and more here in VA, I am galled by the attitude of bank "negotiators." These people seem oblivious to market realities. On the other hand, there are some good deals out there in the REO world. I agree that vigilance is key and maybe some more oversight would be a good idea.
Very solid points. Good post.
Sure makes me wonder if I wanna even try to re-list with the bank the vacated foreclosure with leaking roof and caved in ceiling I have listed right now. It expires tomorrow.
I agree with some points, but disagree with others. The banks own the homes, they bought them at auction, therefore they get to say what happens to their homes and what the terms are, just like any seller. The REO agents know what they are getting into, and they volunteer to do this job. If you explain to the buyer how this works, and they are okay with it, there are good deals to be made. Remember, life is full of trade-offs, and the price for a good deal is the risk of the unknown.
On the other hand, I agree that foreclosures are bad for the industry, but I am not willing to use my tax dollars to bail out some lender that made a bad loan or some buyer that bought a home for more than they can afford. How is any of that my fault, and why should it cost me money? If the buyer loses their home, that is a choice they made and if the bank crumbles because they made too many bad loans, then it was their own greed that brought them to their knees. Just like any other business, lock the doors and sell the desks.
Sorry, but none of this was my fault and I don't have the extra money to bail out my neighbors and my local bank. By the way, without the REO business I would be selling my desks!
Good points but a slanted view, not all properties or banks are snakes and not all reo agents are slimy.
Homes are sold as is where is but that does not disallow inspections or other due dilligence,
Dennis, I disagree on several levels. Just because the bank owns the home doesn't give them the right to change the purchase contract which has evolved to protect seller and buyer in the transaction. Just because they have the legal resources to counter the contracts and remove the Buyer's rights doesn't make it good business practice.
This post has nothing to do with your tax money. It has to do with Banks taking away Buyer's rights and placing liability on REO agents.
Andrew, I made an effort to not place blame on REO agents and I never said they were slimy. I have had REO agents that were extremely difficult to work with, however I have reserved judgement because as I know what they do to the Buyer's side, I also know they do the same to the listing side. This post is actually as much about the REO agent's abuse as it is about the Buyer's level of abuse.
I also agree that not all banks are abusive Some ARE, however. This post is about that abuse and aimed at helping the consumer understand that they may lose some level of protection and rights when the bank counters the purchase contract. I have had reasonable REO transactions and I have had hellish ones where I did not sleep for the entire escrow.