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REOs

Bank-owned (REO) properties provide two unique opportunities for a buyer: (1) The seller is a financial institution that manages the sale of real estate from the basis of an asset vs. liability strategy. (2) Bank-owed (REO) property is priced based upon a Broker Price Opinion (BPO), prepared by a real estate agent specializing in such properties, which most often reflects the real-market time to sell a property within 30-90 days. Therefore, REO transactions are based upon a time and return goal, rather than the “wants” or “needs” of an individual seller.

As attractive as these benefits are to a buyer, there are certain conditions that may be imposed by the title holder (bank) that will appear by way of an Addendum to the CAR Residential Purchase Agreement (RPA), the standard form customarily used in real estate transactions in the state of California. This Addendum will be provided by the seller’s agent either prior to the acceptance of an offer (RPA) or appear as part of a Counter Offer provided by the title holder.

The terms of the Addendum are not intended to be negotiable, and may negate or modify certain conditions that are material to the original RPA. The Addendum generally states, “This Addendum supersedes the terms of the Contract of Sale (RPA) and all other addendum, “ or “In the event any provision of this Addendum conflicts in whole or in part with the terms of the Contract of Sale, the provisions of this Addendum shall control.” The outstanding exception to this stipulation is local code or ordinance, in which case the applicable code or ordinance does supersede the Addendum. An example in the City of Santa Barbara would be the Zoning Report and the Natural Hazards Disclosure.

Contractual terms often affected by the Addendum may include

1. Contingency time frames

2. Inspections/Appraisals (or lack thereof)

3. Termite inspections/remediation

4. Allocation of closing costs/fees/title insurance

5. Transfer tax fee allocation

6. HOA assessments or past dues

7. Pre-Approval for loan by title holder (bank)

8. Title holder (bank) fees

9. Title and escrow designation

Essentially, the Addendum reduces the RPA to an “As Is” agreement, and may go as far as to stipulate that the title holder (bank) may cancel the contract of sale up to the sale date. While this occurrence is more the exception than the rule, it is important to know if it is a part of your contract.

As experienced agents, we can help to identify REO opportunities and facilitate a successful transaction. The following are upcoming bank owned properties that will be available in the near future:

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