Before delving into today’s topic, let’s quickly define a bank owned home. A property owned by a bank (lenderter an unsuccessful sale at a foreclosure auction is known as bank-owned or Real Estate Owned (REO) property. This usually happens when there are no bidders for a foreclosed home, which typically happens if the house in upside-down in value…meaning the amount owned on the home is higher than the current market value of the foreclosed property. Bank-owned homes are usually sold directly by the lender after it is repossessed.o
An REO is considered a non-performing asset of the bank. This means the bank has little or no incentive to invest in the upkeep and maintenance of the repossessed property. The condition of REO properties varies greatly. Some properties may be in dilapidated conditions with overgrown or dead landscapes and extensive repair requirements, while others may be in move-in ready condition. Both the interior and exterior of the property may in some instances be poorly maintained. Therefore, a bank owned property need not automatically be a great bargain. It requires plenty of due diligence by the potential owner at his or her own cost.
A bank owned property is generally purchased on an “as is” basis. Although the new owner is given an opportunity to inspect it, the bank usually does not agree to perform any repairs. However, the new owner assumes the risk of potentially unknown issues with the home. This could include electrical, plumbing, foundation, structural and other damages to the property. Repair costs and the time to complete them can also be unknown factors.
While some banks may include a one-year home warranty on the property if it is asked for in the purchase offer, most banks don’t offer to pay for it as a matter of policy. It behooves the typical home owner to purchase a home warranty plan at their own expense if they are faint hearted. Owners that are handy with repairs or those who are familiar or experienced in buying bank owned homes may choose not to buy a home warranty plan at their own risk.
An REO is considered a non-performing asset of the bank. This means the bank has little or no incentive to invest in the upkeep and maintenance of the repossessed property. The condition of REO properties varies greatly. Some properties may be in dilapidated conditions with overgrown or dead landscapes and extensive repair requirements, while others may be in move-in ready condition. Both the interior and exterior of the property may in some instances be poorly maintained. Therefore, a bank owned property need not automatically be a great bargain. It requires plenty of due diligence by the potential owner at his or her own cost.
A bank owned property is generally purchased on an “as is” basis. Although the new owner is given an opportunity to inspect it, the bank usually does not agree to perform any repairs. However, the new owner assumes the risk of potentially unknown issues with the home. This could include electrical, plumbing, foundation, structural and other damages to the property. Repair costs and the time to complete them can also be unknown factors.
While some banks may include a one-year home warranty on the property if it is asked for in the purchase offer, most banks don’t offer to pay for it as a matter of policy. It behooves the typical home owner to purchase a home warranty plan at their own expense if they are faint hearted. Owners that are handy with repairs or those who are familiar or experienced in buying bank owned homes may choose not to buy a home warranty plan at their own risk.
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