Can You Negotiate a Bank-Owned Forclosed House?
When a foreclosed home does not sell at auction for the amount the lender has invested in the home---the previous owner's remaining debt plus the bank's foreclosure costs---the property returns to the bank. These homes are known as "real estate-owned" or "REO" properties. The purchasing process for REO homes is very similar to that of owner-occupied property. In many cases, you can even negotiate aspects of the sale with the bank holding the title.
Price Negotiations
You don't have to pay the asking price for an REO home simply because a bank owns the property. Like traditional property sale transactions, you can submit an offer lower than the advertised purchase price to the bank through your real estate agent. The bank then reviews the offer and, if it's sufficient, accepts it. If the offer is too low, the bank has the option to either reject the offer or counter your offer with one of its own. Banks almost always respond to interested buyers' offers with counter-offers. The bank's REO marketing department must demonstrate that it made all reasonable efforts to procure the highest price possible for the home. Banks and buyers negotiate the price of REO properties through the offer and counter-offer process.
Negotiating Repairs
Banks typically market REO homes "as-is." This means that, should you purchase the home, you are responsible for making any necessary repairs or upgrades to the property. Not all banks, however, follow this rule. Some market their REO properties "as-is" but are still willing to make certain small repairs in order to successfully sell the home. Buyers and their agents can always attempt to negotiate REO property repairs with the bank that owns the home.
Closing Costs
You can reduce the amount you pay your lender for the loan upfront by requesting that the bank holding the title to the REO home you want to purchase pay all or a portion of the closing costs associated with the transaction. Closing costs include your lender's fee for originating the loan, taxes, title insurance and any other fees your lender charges for granting you a mortgage.
While the bank selling the home can turn down your request for closing costs, its fairly common for sellers to cover a portion of the buyers closing costs. In an effort to remain competitive, certain banks may negotiate this amount with you---lowering your upfront costs.
Negotiation Considerations
For the greatest negotiation power, consider financing your mortgage through the bank that owns the REO property. Depending on the bank, you could receive a lower interest rate or lower down payment requirement for doing so. When you finance through the holding bank, the bank wins twice---it profits from your mortgage while simultaneously unloading an REO property. This increases the bank's motivation to negotiate different aspects of the sale.
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