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In today’s market, almost every other deal is a Bank Owned deal or a Short Sale deal in most market areas. This provides wonderful buying opportunities as the best deals are often these foreclosure deals that are priced significantly lower than the market value. In many cases, these properties are not necessarily in poor conditions but since the sellers are motivated to sell, these homes are listed at least 10% below the current market value, and in many cases 30% to 60% lower than the peak value in 2006. For buyers who are patient and willing to invest in some time and energy, you will be able to save more than $30,000 and in some cases more than $100,000 to purchase a foreclosure home with similar condition compared to another home in the same area.

The best foreclosure deals and easier to work with are Bank Owned deals, or Real Estate Owned (REO), Bank Repo, or post-foreclosure. These are properties that have been foreclosed and taken back by the lenders and now listed on the open market for sale. The list prices normally started out at a much lower price level to encourage fast sales. The bank sellers or the asset management companies are normally on top of these files and can get into contract with a buyer after offer submission fairly quickly, in 2-3 business days. A Short Sale on the other hand, is a pre-foreclosure deal that is sold by the homeowner, as the home is in the process of being foreclosed by the lender and the sales price is lower than what is owed on the property. A short sale must go through the approval process by the lender, as there is normally a significant loss in the loan payoff.

Quick tips for Bank Owned deals:

1. Bank Owned deals are normally always the best deals on the market and there are many active buyers constantly looking for them and the best deals often attract multiple offers, sometimes with more than 10 offers, on the property within a few days of the listing.
2. Buyers must always be well-prepared with a complete Buyer Package ahead of time, in case a great deal appears and they can beat the competition. Sometimes it is first come first serve besides competing in offer price and buyers’ purchase qualifications.
3. Once the Buyer Package is prepared, buyers should try to narrow down on their search range in terms of types of homes and areas and then consistently check the daily e-mail listings from your agent and get ready to look at homes immediately as they become available.
4. Often the buyers who successfully win bank owned property contracts are those who are flexible to look at homes on weekdays besides just weekends only. Most average buyers only look at homes on weekends, but if you are looking for great deals that save you tens of thousands of dollars, it is worth spending a little extra effort to look at homes on weekdays, including lunch breaks or evenings.
5. When in competition on the offer, bank sellers always ask all buyers to submit their Final and Best Offer. They do not negotiate back and forth with each buyer as it wastes time. Buyers cannot know exactly what others are offering so it is fair to all parties, but the good thing is normally the decision will come back fairly quickly without much time wasted.
6. Be flexible with your closing time and be patient. Bank Owned deals normally take longer to close and often are unpredictable in their closing timeline, as bank sellers simply have too many deals on their books to handle. A little patience and flexibility will help tremendously in your success.

Quick facts about Short Sale deals:

1. The listing agent and seller set the list price. However, the real seller is actually the lender who holds the note on the property because the property cannot be sold without their short sale approval. Sometimes the listing agent will set the price particularly low to attract many offers, but if the list price is too low, the lender will reject it anyway. Lenders will first order an appraisal from other agents to determine the current market value and consider the best offers submitted. That’s why the offer price must be reasonable to get accepted. Don’t worry. Most short sales are still good deals and should still be much lower than other properties on the market.
2. Most short sales will require at least 30-60 days to obtain lender’s approval. Lenders will require a lot of financial information from the homeowner before they begin their consideration and this may take some time depending on how well the listing agent works with the homeowner. Then, the complete short sale package, along with at least one offer, will go through the lender’s internal management review. You can imagine the lenders these days have piles of short sale files to review so the response time is always quite long. Each short sale case is very different, as we face a different lender, a different owner and listing agent, so obviously some deals will go through much faster, while some other deals take a much longer time and even never work out in the end.
3. We encourage buyers who consider short sale properties to submit their Final and Best Offer on the property, along with a good Buyer Package to present themselves as Highly Qualified Buyers. Then, simply forget about the short sale offer and continue to look at other properties as well. There is absolutely NO OBLIGATION to buy the short sale property when the lender comes back with an approval at a later time and often our buyers make offers on many short sale properties they like and see which one will work out eventually. In many occasions there will be multiple offers on short sale deals due to the lower list price. However, we encourage buyers to not worry about the competition, as many of these buyers over the long idle wait time may move on and not consider the property any more when the short sale approval actually comes back. Often, the buyers who successfully purchase short sale homes are those with a lot of patience, or simply those who come into the deal at a perfect time when the short sale already started ahead of time and the wait time is cut short.

The Buyer Package for short sales is basically the same as the one required for Bank Owned REO deals. It is best to start the preparation as early as possible since you may soon find out the best deals are taken so fast in the matter of days by well prepared buyers. This preparation is also very helpful for any other regular transaction not dealing with a bank, as the point of the complete upfront buyer package helps demonstrate the buyers’ qualification to purchase and also their seriousness. For bank owned and most short sale deals, the bank sellers will NOT even consider your offer if it did not accompany the complete buyer package!
Please note almost all bank owned and short sale properties are AS-IS sales, so the only negotiation is in the price and the seller almost never does any repair. Sometimes, as part of the price negotiation, we ask for seller to pay for the 2%-3% buyer closing cost to help minimize the total out-of-pocket cost for the buyer. The success rate really depends on the deal and how competitive the other offers might be, which varies significantly. Keep in mind that you only need to do this buyer package preparation one time and it should be good for the next 2-3 months so you should just keep trying on these bank owned or short sale deals until you eventually get one when the right deal comes at the right time. That is always how our buyers win these bank owned deals that are way below the market value.

Buyer Package:

1. Pre-approval letter. This is standard as all offers need to come with pre-approval letter. Sometimes a bank seller will request an approval by their own loan officer. For example, a Countrywide bank owned property may ask you to get pre-qualified by their chosen Countrywide loan officer, a Wells Fargo property may ask you to get pre-qualified by Wells Fargo loan officer. Each time the rule is different, depending on the bank instruction.
2. Verification of funds. Copy of bank statement or other liquid account statements showing enough down payment plus closing cost reserves. If you prefer 10% down, please show at least 15% reserve. If you can only do 3.5% down payment with FHA loans, please show at least 6% reserve.
3. FICO (credit) scores. This could be the first page of your credit report your mortgage broker or loan officer can help you pull. Almost all bank owned sellers demand that.
4. Copy of the earnest money check. This is at least 1% of the purchase price, made out to the chosen escrow company. This is just a copy of the check, no need to send in just yet when making offers.

Besides working with your own mortgage person, we strongly advise that you contact one of our preferred direct lenders who we have developed long-term working relationship with, listed below. Our mortgage partners have closed on many bank owned deals in recent months and have proven to be very helpful in the current mortgage market.

As you can see, it is very important to work with Agents with a lot of Short Sale and Bank Owned Deals experience. This way, you will have the highest chance of success to make these deals work and avoid wasting time on those deals that may never work, as great agents with foreclosure deal experience will help consult you on what to expect every step along the way. We at The Chen Group do foreclosure deals for more than 70% of our business and have been successful in closing these deals. We look forward to helping you on your home search for the best deals on the market.

Lastly, when buying a bank owned property, there are often some small inconveniences, such as missing extra keys and remote control for the garage door or security gate if the property is within a gated complex. It is understandable, as many homeowners who foreclosed on the property simply abandoned the home without leaving all of the keys and remote in the home or send to the their lenders. In this case, it is the buyers’ responsibility to get their own sets of keys and remotes and the inconvenience is justifiable with the great discounts buyers get when buying bank owned properties. For bank deals, we recommend buyers replacing the locks on all external doors, as we do not know who might still have possession of the existing keys. For the garage door opener remote, buyers can find generic ones at Home Depot or Lowe’s for about $30 each and simply match the code to the existing garage door opener. If there is a need for any security gate keys and remote for the complex, the best way is to contact the HOA manager to order a copy.

For more information, please visit http://www.joechenhomes.com/buyers_page.shtml#reoinfo