There are still thousands of properties out there owned by banks. Even though most of their portfolio was reduced after the mortgage collapse there is new inventory created every day. Every time a property goes into foreclosure and doesn’t sell the bank retains that property. As most investors know banks are not in the business of owning homes. They want to lend money and earn on the interest received. That being said they are not going to simply give properties away either. Purchasing these requires a mix of efficiency and speed to get the job done. There are many bank owned properties available but only if you know how to acquire them. Here are five tips to help close more bank owned properties.
- Update Proof Of Funds. 99% of all bank owned transactions are done with cash. Before you consider making an offer your proof of funds needs to be updated. A proof of funds letter is dated and signed by a bank representative verifying that you have the funds available in your account. In most cases this is enough to submit your offer. If you want to jump ahead of your competition you can include an updated bank statement as well. Banks want to know that if they accept your offer you will really close. They have been burned too many times in the past with offers that drag on for weeks without closing. By going the extra step and including an updated bank statement you leave no doubt that you are ready, willing and able to move forward with the purchase. It is important that your bank statement is as recent as possible so there is no question as to whether or not the funds are available.
- Increase Earnest Money Deposit (EMD). The earnest money deposit is the amount you put into contract and submit when you make an offer. A majority of bank owned offers come with minimal EMD. This is one of the worst things you can do. By increasing your EMD you show the lender you are serious about the transaction. If you back out of the deal unexpectedly you stand to lose your deposit. If something comes back on the inspection you can get your deposit back but if you have a sudden change of heart the bank can keep your money. By having as much skin in the game as possible lenders know that the chances of you not closing are greatly reduced. This comes back to the thought that lenders will accept offers they feel are really going to close. By increasing your EMD from $500 to $5000 you dramatically improve the chances that your offer will be accepted.
- Contract & Contingencies. Another area where banks hold a premium is with the contract. There is a fine line in the real estate world between protection and acceptable risk. When you make an offer on a bank owned property you need to know that they want as little confusion with the contract as possible. This starts with making sure everything is signed, dated and initialed where needed. Something as simple as a missed signature will cause your offer to be put on the bottom of the pile. You also want to make sure you have the proper contract and everything is legible. A big part of the contract is the contingencies. The only contingency that you should have is with the inspection. Since you paying with cash there should be no financing contingency. The inspection should be completed within 48 hours of the acceptance of your offer. Don’t even think of asking for any credits or changes to the property. Bank owned properties are almost always bought as is. It is a reoccurring theme but the easier you make it on the bank the more likely they will choose your offer.
- Quick Closing. With every bank owned offer you make you need to be ready to close as quickly as possible. Every day that the bank owns the property they are paying taxes and insurance on it. They want to get it off their books right away. Most bank owned properties have a 30 day closing on the contract. The quicker you can push this up the better it is for you. If your funds are transferred and sitting in the bank closing before two weeks should not be a problem. Something as seemingly minor as the ability to close in 14 days as opposed to 30 can give you the deal.
- Respond Quickly To Counteroffers. In a perfect world the offer you make will be quickly accepted and you can move on. A much more likely scenario is that the bank will counter your offer. When they do it is a sign that they either have multiple offers or need to hit a certain number to sell. If you really want the property and are willing to counter you need to do so as quickly as possible. You may only have a few hours to submit your revised offer. The longer you way the more likely it is that someone else will come in and swoop the deal away from you. You should have an idea of how high you are willing to go even before your initial offer is made. Once the bank counters all you are doing is allowing your real estate agent to act. Even if you decide you don’t want to counter you should let the bank know these intentions as well.
Bank owned properties are a huge niche in many markets. To acquire these properties you need to act fast and follow these five important tips.
