REO and Foreclosure Myth vs Fact
Myth: Banks will sell their property at a huge reduction in price just to “dump” the property.
Fact: While banks do not want to hold inventory any longer than necessary, they are also not in business to lose money. Once a property has been foreclosed a bank has already increased their investment by lost mortgage payments, unpaid taxes, legal fees and other costs. The bank will price the property according to the fair market value, and will work to get the highest and best offer possible.
Myth: Buying an REO with cash entitles a buyer to a discount in price.
Fact: Banks are concerned with recovering their money from a property and nothing else. They will accept a qualified financed offer that is higher, over a lower cash offer every time.
Myth: Every lender liquidates their inventory in the same manner.
Fact: This is false. Each bank has its own business plan and bottom line. Some may be able to accept lower offers on certain properties due to a large inventory, while others choose to wait for higher offers on every home. There is no industry standard with regard to REO sales prices.
Myth: An REO purchaser must use the bank that owns the property to obtain financing.
Fact: Banks, like any other seller, are only interested in receiving fair market value for the property they are selling. They will accept a pre-qualification letter and financing from lending institutions other than their own.
Myth: The list price is the list price- there are no price negotiations for REO properties.
Fact: The price for REO properties is negotiable as in any other real estate transaction. It is important to keep in mind though, that the bank is trying to recover an investment. All reasonable offers will be considered, but the bank’s primary concern is their bottom line.
Myth: Buyers can use a HELOC (Home Equity Line of Credit) to purchase an REO.
Fact: Showing that you have a HELOC on your existing property is not acceptable as proof of funds on its own. In order to make this an acceptable proof of funds you will need to provide additional information to the seller that you have available credit remaining on the HELOC and that the lender will be able to release those funds within the time frame needed. Sellers of REO homes, just like any other property, need proof of money actually at your disposal in order to determine your qualifications to purchase the property.
Myth: It is easier for the bank to sell the property before the foreclosure auction in order to save time and money.
Fact: The bank cannot sell the property to an interested buyer until they have taken title to the property. While the foreclosure process is still taking place, the bank does not have legal ownership of the property yet.
Island Advantage Realty
Island Advantage Realty, LLC has established itself as an innovator and leader in the REO market throughout Metropolitan New York and Long Island. With 20 years of experience handling foreclosed and residential properties, you can rely on our knowledgeable team of agents to assist you with all of your Real Estate needs. Trust the experts. Trust Island Advantage.
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