The San Francisco Peninsula Real Estate Blog

Just ran across a great article in the San Mateo Daily Journal — it’s a brief, but very interesting description of the history of Millbrae.  Enjoy!

History of Millbrae

The trying economic times we’re experiencing has made an impact on the real estate market that we haven’t seen in decades:  The Real Estate Owned (REO) property.   An REO property is simply a home that is now owned by the bank after a foreclosure proceeding, and is being sold on the market.    Sometimes, REO’s can represent a good opportunity for buyers.   Banks are in business to loan money, NOT to own houses — so they are motivated to get a stagnant asset like a vacant home off of their books as soon as possible…the more motivated they are, the lower the list price.

With all of this opportunity for buyers, are there downsides to consider?  You bet.   Here are the three biggest things to consider when considering the purchase of an REO:

1.  Disclosures (or lack thereof.)

California Real Estate Law requires the owner of a property to disclose any material facts about a home that may have an impact on its value — if you’ve shopped for a home, you’ve definitely seen a thick disclosure packet or two.    But there are provisions that allow exemptions for owners who haven’t lived in the home, or who simply inherited the property through a trust proceeding — REO’s usually fall under this provision, so there will likely be NO disclosures about this property.  Consequently, you don’t get the benefit of the previous owner’s knowledge about the house or the neighborhood.  The banks make this very clear when you’re writing an offer.

Solution:

Be sure to hire a very competent property and pest inspector.   Do your own thorough inspection of the property as well.  And don’t be afraid to knock on some neighbor’s doors to get their opinion on the home, neighborhood, street, etc…

2.  Deferred Maintenance.

When homeowners stop making payments on their home, it’s safe to assume they won’t be putting any money or effort into maintaining the home either.  In some extreme cases, homes have actually been vandalized by the departing owner.   Since the foreclosure process itself takes a number of months to complete, you may be looking at a home with several years of neglect.

Solution:

In addition to the aforementioned property/pest inspection, be sure to get estimates from reputable contractors on what it will cost to remedy any deferred maintenance.   A house that looks like a screaming deal on the surface may not be such a great deal when you factor in the cost of fixing everything.

3.  Transaction Timeframe.

As I mentioned at the top of the post, banks are NOT in the business of selling homes.   Most banks have very little infrastructure manage the exponential growth of their REO inventory.  Consequently, you can expect that EVERYTHING in the contract process is going to take longer.   Getting a response back on your offer is usually quite a bit longer than if you were buying from the owner — and this problem simply  multiplies with every counter offer.    A healthy dose of patience is required when buying an REO.

Solution:

Be sure to include an “out” clause in your contract  — This will enable you to move quickly if you’re waiting for the bank to reply to your offer and you suddenly find something you like better.

Summary:

REO’s can be a good deal for buyers, but it’s important to go into the transaction with your eyes wide open and be aware of the possible pitfalls of purchasing a bank owned property.