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So You Want a Foreclosure: Bank-owned Properties - REOs

Part 3 of Distressed Properties are NOT Black Holes!, a six part series. (While I'm based in Sussex County, photos here are from one of my REOs in Passaic County, West Milford, NJ.)

REOs are wonderful opportunities and should NEVER be dismissed!

I'll use the term bank but the new owner could be a mortgage company, corporation or debt collector.

By the time a bank actually owns the property (now called an REO = real estate owned), the bank already has hired one or more people to provide a written opinion of current market value where the property is located. This could be an appraisal but more often is a BPO done by an experienced real estate agent. The condition of the REO is taken into consideration by the appraiser or agent doing the BPO, although some BPOs are external only and the agent never sees the inside.

NOTE - Many BPOs ask for the cost to do basic repairs to the property; I've never had a bank actually pay to do those. Sometimes banks have multiple BPOs done to get a few different opinions.

Work begins long before the REO is listed!

Front of REO

Banks may or may not select one of the BPO agents to be the listing agent representing the seller. Once the bank has selected an agent to handle its REO, there often is work to be done before the home is actually put on the market.

If the home is occupied by a tenant or the former owner, that situation needs to be changed. Many banks offer a "Cash for Keys" deal - a payment made to the occupant in return of moving out and leaving the property in reasonable condition. Based on my experience, I'd say the amount would cover the first month rent on another place and a U-Haul in which to move personal property. It's a modest incentive to avoid eviction proceedings.

Warning to agents - Absolutely talk to your broker or an attorney before handling any Cash-for-Keys work! Do not assume it is okay because the bank has asked you to do so. Local laws relating to this can vary widely. Your safety is another factor - not everyone will react well if you knock on a door and ask them to vacate...Before and after

Then it is cleanup time. A few banks have their own contracts to handle this but most leave the work to the listing agent. The bank expects its agent to pay for such work and get reimbursed. Because of this, as well as time and effort, some agent use a service to handle this "trash out" process and continuing care.

What gets done

  • Depending on the amount and cost of work involved, the listing agent might need to get several bids on these items.
  • The banks pay to have contents removed. (Agents - again check laws, you may have to hold this personal property and make an attempt to contact its owners to claim it.)
  • Basic yard work yields some curb appeal. As I mentioned above, few repairs will be done but safety issues might be corrected.
  • The home is winterized - at least in my neck of the woods - probably in most places to prevent water damage even without freezing.
  • Utilities. Some banks insist electricity be on; some pay to heat as well.
  • Continued care. Many banks authorize minimal on-going work: shoveling snow, periodic lawn mowing, leaf removal, etc.

During this period, the bank will have obtained price opinions and set an asking price. Now the property is ready to be listed.

Posted Thursday Apr 23