Buying Bank Owned Homes

 The Good

    The good is that you may have the opportunity to put sweat equity into a home that otherwise might not be obtainable.

     In other words, if you are willing to work for it, you can improve the value of your home, without making a substantial financial investment.

     One common misconception is that these homes are all great deals. They are selling at Fair Market Value (see below). These homes are valued according to the condition, location, and market, just like other homes. In fact, the sellers (banks) can be much tougher to negotiate with than private owners. They need to show their shareholders that they are selling these homes at fair market value or above.

Fair Market Value

     The definition is:

     The most probable price at which a good or service will exchange, expressed in terms of cash or equivalent, in a free market assuming:

• A knowledgable and willing seller unencumbered by undue pressure to sell and acting in his own best interest.
• A knowledgable and willing buyer unencumbered by undue pressure to buy and acting in his own best interest.
• A resonable time for exposure in a free and open market.

  ---

The Bad

     There is a lot of bad when it comes to buying bank repos. Condition is covered on the page entitled "The Ugly". Worse even than the condition, is the process you have to go through to buy one.

     First, you need a lot of time. It may take weeks just to get an answer to your offer back from the seller (bank). The agents that have these listed have little or no control over the seller (banks) and I have no control over either.

     You must have time and patience if you are going to attempt to buy a bank repo. Once the offer is accepted, the process to get to closing can be emotionally challenging.

     Often there are title issues that slow things down. We've seen closings average 60 days and as long as seven months. The seller (banks) hire local closing agencies to close these transactions. Frequently, the seller (banks) won't provide title insurance, and the buyer has to pay for their own. The closing fee to the buyer is about double the same for a private seller transaction.

     To have a home inspection requires that the power to the home be turned on by the seller (bank). This is usually a lenghty process and once you have a home inspection the bank will not fix anything you find wrong.

     Many banks won't comply with Shiawassee County Well and Septic requirements and leave that to you with an expense of around $1000.00.

     Almost every bank fines the buyer $100.00 per day for every day that the buyer can't close after the designated date, and I've even seen it charged when the buyer was not at fault at all.

     "Verbal" Response to Offers

     Most of the seller banks you might buy a foreclosed home from will initially respond to your offer verbally, rather than on a written agreement. While this may speed up the negotiation process, it is far less than ideal.

     In the past we could trust these banks to hold their word if they made a verbal commitment, but in the last year we have had several occasions where banks have made a verbal commitment, then later not followed through. This could leave you with money out for a home inspection, or appraisal with absolutely no recourse.

     Michigan State law dictates that all Real Estate contracts must be in writing to be enforcable. Therefore when a bank issues a verbal response, no court can enforce it. A buyer is essentially just out when the bank changes their mind.

     To date this has only happened a few times that I am aware of, but I do want to make sure that you understand that it is possible that the seller (bank) might not follow through on a verbal commitment.

Comparison between private owned homes and bank owned homes:

The Ugly

    Let's face it. These are your basic fixer uppers. Most are in very bad repair. This can range anywhere from very dirty to ripped to shreds.

     You never know if the furnace works and often the plumbing has froze and burst. I have even seen some where the previous owners took the plumbing with them.