I know it is odd to position it like that, but banks are now homeowners. There have always been a few homes on the market here and there that were bank owned, but the numbers are increasingly higher, and growing. It is certainly going to take some time for the number of bank owned properties to stop increasing, and even longer for all of the bank owned inventory to sell. I can not stress enough how this will significantly change the real estate market and really the industry in general. There is plenty to talk about on this topic, but in this post, I just wanted to highlight some of the things to keep in mind, if you are planning to jump into the Real Estate market right now, as a buyer or seller.

The reality is banks are lousy homeowners, because that is not the business they are designed to be in. They are in the business of lending money in exchange for a lien on the property, so you would think they would have a better system in place for liquidating them when they end up taking over. No system could have accounted for the amount of inventory they would be holding, and how long they would have to hold and maintain these properties. That is why we have the mess we have today. Like I said, this is forever changing the real estate market and the industry. Investors are getting involved and looking for new ways to make/recoup money. Start up companies looking to create new business models are popping up to assist banks, as the banks really do not want to be in the business of owning homes. New Realtor organizations, education and certifications are being formulated. Again, this is a BIG deal… but it can be an advantage if you stop thinking about the Real Estate market you last bought and sold in, and start using the new landscape to your advantage.

What do sellers need to know?
There is some good news right now. REO homes (REO stands for Real Estate Owned. This means that the homeowner defaulted on his/her loan so the bank has foreclosed on the property) are still selling at or near market value. As a personal home owner, you certainly have an advantage, as REO transactions are very complicated, often fall through, and take some time. I will get into that in a second. The catch is, that the foreclosures are selling at TRUE market value. The problem is it is much easier for a bank to price at market value, than it is for you the homeowner. Why is that? Because there is no emotion involved, to them, it is just the numbers. The equation for them is simple, they are trying to cover the amount they were owed, or, if that amount is more than what they perceive as current market value, then they assign an acceptable loss, and that is the amount that they are willing to sell at to get the property off their books. This is another reason why banks accept short sales, because they do not want to end up as the home owner, and perhaps take a loss anyways. You can learn more on that topic of short sales on my previous post.

Again, it is just numbers to them, no emotion. They did not remodel the kitchen, they don’t think it is worth more than the market because it has great landscaping or a good vibe. They didn’t plan on using the equity one day to pay for a car, or finance a child’s college tuition. All they care about is the current market value, and pricing the home to sell, as long as that price is within their acceptable loss/write off/future risk equation. They will not be offended by a low ball offer, they will simply work through their Realtor to counter ONCE at the lowest price they will accept, and by the way that is usually close to asking price. These homes are priced to sell.

So what does that mean for you? You need to take the same approach. Look at the numbers, and the reality of the current marketplace. It is not always the reality we can or want to accept, but also know it can get worse. Look at your comparable analysis from your Realtor, and your current financial situation. Price your home to compete at the real market value, not what you once hoped to sell it for or what you might have bought it for. If you are under water on your loan, pursue a short sale.

Most importantly take advantage of the fact that at the end of the day, people like to do business with other people, not some liquidation department at a bank. If you get a low offer, be happy you have some action. The buyer mindset right now is that the worse you can is say no, or counter. If you get some interest, counter in a smart way, at least you are negotiating. Get creative in what else you can offer that banks can’t… short or long closing periods, rent backs, contiguity sales, etc. Banks like vanilla deals, no strings attached so use the human aspect to help you sell. A buyer will be willing to pay a bit more for a smooth transaction and the ability to deal with a real person, instead of the banks that only see black and white. As the Banks learn how to be better sellers, this advantage will dissipate, but you have this advantage now!

What do buyers need to know?
Now is a good time to consider buying. The seller market is competitive now due to the number of bank owned properties, but government is doing what they can to keep people in their homes. Although it is expected that we will see more, one can’t say how it will effect the market. We have seen recently seen in the news big banks and lenders holding all foreclose activities.

So when should a buyer specifically look for REO homes. If getting into a specific neighborhood is important, this might be the best route for you. Don’t get your heart set on a single home, think more about the neighborhood. If you are a renter and don’t have to worry about selling a home to do a deal, great. If you own your home, and really want to get into that dream neighborhood or bigger home… get your home on the market. If you sell and can’t find that great deal before closing… rent. There are plenty of folks willing to do short term rentals as their house sits there unoccupied costing them money. You will be in the drivers seat.

If you are ready to move on a deal, there are ways to exclusively search for foreclosure and bank owned properties. You can do this on my website, or have a Realtor find these deals in your community. But beware, be ready for a rocky road ahead. If you make an offer, be ready to wait for weeks. The person that needs to approve, or accept the offer is slow to respond, got fired last week or is on vacation or an extended lunch break or has other offers in addition to yours. Be ready for no call backs, full voice mail boxes, etc. Leverage your Realtor, who an work through the seller Realtor, who has real contacts at the bank.

As banks continue to be in financial trouble, they are laying off the very people that you need to deal with. The loan workout departments are backed up, and short staffed, and forget about getting creative. The banks want a simple clean offer, no contingent sales or rent backs, long closing periods, etc. Offers are “as is” and like I said, expect to wait weeks for the offer to be presented, and then don’t expect to negotiate offers like other sellers will do. They just accept, or reject or counter ONCE. They have priced the home to sell, so if the asking price seems like a deal, go for it, if not, don’t expect to grab it far under asking. Once a home is in foreclosure, the bank has probably already looked at short sales or a work out to keep the owner in the home, so they are pricing the homes at true market value.

So why deal with the banks if you are a buyer, why go through the trouble. Simple… you might get a great deal. More and more these days, you might not have a choice. The homeowner selling that house you really really want might just be a bank. :)

Best,

Jill