10 Tips For Buying Bank Owned Property & Getting a Smokin Deal

17 Feb

How to Buy a Bank Owned Home

As an active real estate investor we have roughly 40+ offers on bank owned homes at any given time, and are always looking for great deals at the County Foreclosure Auctions.  Negotiating to buy bank owned homes is not always that easy, however perfecting the formula will allow you to get some incredible deals.

Example:  We recently went into escrow on a 4–plex located in Glendale Arizona just minutes away from University of Phoenix Stadium where the AZ Cardinals play football.  The property was on the market for 249 days and the bank slowly dropped the price until it became a smokin deal.  Here’s the listing history below.

As you can see it started at $239,000 back in 5/08 and slowly dropped to $99,900.  Our 1st offer was for $62,000, buying it “as is” and waiving all financing contingency with a $1,000 EMD(earnest money deposit) with a fairly quick close.  The bank countered our offer at $85,000 with 10% EMD which we counter them back at $72,000 “best and final” and accepted their 10% EMD request. We got the acceptance from the bank and opened escrow.

Buying Bank Owned Homes

This is roughly a 30% decrease form the banks asking price.  The property is worth approximately $160,000 to $170,000 after we do a full renovation. 

Here are 10 Tips For Buying Bank Owned Homes and Getting a Smokin Deal.

Before making your offer you will need to:

1. Find a good realtor that can assist you in writing and submitting your contracts.

2. Acquire a Proof of funds letter from a hard money lender or a bank account balance that will cover the purchase price or a pre-qualification letter from your conventional lender. Real Estate Radio USA published a Hard Money Directory you can check out.

1. Determine the value of the property, I wrote a post on this subject and you can read it here.

2. Look for properties that have been on the market for a significant time due to the condition or the price.

3. Offer 15%-30% below the banks asking price, if the property is in poor condition than your offer should be in the 30% range.  If the property is in fairly good condition you should offer roughly 15% below list price.

4. Offer $1,000 EMD, 30 day close with a 5 day inspection period buying it in “as is” condition.  This will give you a “free look” for 5 days to get your contractor in and determine the cost of renovation.

5. Submit the offer asking for a 48 hour decision, and let the selling agent know that you have several offers in on bank owned homes and that you’re only buying one.

6. The banks will counter, expect it, don’t get discouraged.  Just raise your price slightly, in the example above I offered 38% of list price and came up 14% leaving my buy price about 28% of list or about 45% of true after renovation value.

7. Make your 2nd offer “Best and Final” and remind the listing agent that you have several offers in and are only buying one.  The agent will surely say they’re expecting other offers as all agents do but here’s a tip, Never Believe the Bogy.

8. If the bank counters this best and final number than increase your price by $500 to $1000 and that’s it.  If they don’t accept the offer, be prepared to walk away.  Do you know how many times I’ve walked away from a deal and got it at a better price just a week later?

9. Once the offer is accepted open escrow and start your 5 day inspection.  Have a contractor notate everything wrong with the property.  Have them write a formal bid to present to the bank on day 3 of the of the inspection period asking for a small price reduction.  Some banks will not respond and some will agree to the price decrease, this is just the last ditch effort to get the best possible price. If they don’t agree and the numbers work proceed to closing.

10. Close the deal and start renovation.

This method has worked for us time and time again, please understand that as the market continues to get better the banks will accept offers closer to their list price, so take advantage now as the market is ripe for the picking.

If you have any questions regarding this technique, please leave a comment and Mike and I will be happy to answer them.

Happy Investing!

Tags: 10+Tips+For+Buying+Bank+Owned+Property
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22 Responses to “10 Tips For Buying Bank Owned Property & Getting a Smokin Deal”

  1. Mary E. Raymond 06. Mar, 2009 at 7:03 pm #

    I like the concise way you define the steps and let the readers know what to expect throughout the process.

  2. Sean Terry 06. Mar, 2009 at 8:23 pm #

    Thanks for the complement Mary, I’m a Vermonter myself, I grew up in South Burlington across from UVM. I miss the seasons. How’s the real estate market back there?

  3. Jane Burlington 18. Sep, 2009 at 11:36 am #

    Nice article, now is the time to buy bank owned properties. And for first time buyers don’t miss this great opportunity bedcause of the recession properties are sold for cheap price.

  4. Laura 05. Oct, 2009 at 6:39 pm #

    How do you go about making an offer on a Bank Owned Property when you need to sell your own house in order to afford to buy it? Do you think it will ruin our chances of getting the house if we put in a contingency that our agreement is contingent on us selling our house?


  5. john 06. Dec, 2009 at 6:31 pm #

    Want to exchange house flipping links?

  6. true home buyer 06. Dec, 2009 at 6:31 pm #

    Great insight. Wish I found this site a long time ago.

  7. Christina 20. Jan, 2010 at 10:40 am #

    We have been watching a bank owned home on the market for the last few months. It has been sitting empty for almost two years, however. The price started out at $149,900 and has dipped down to $108,900. After inspecting the inside of the home, we were horrified at the damages it has sustained from sitting empty, (extreme weather temperatures have most of the drywall in the house crumbling), and not only that, but the folks who were foreclosed on did not maintain the home at all.

    Despite all the updates it will need, we love the layout of the house and see the potential it has. We made a low offer of $68,000.00 and the bank did not counter offer, saying they wanted to keep it at a firm $108,900.

    Do you have any suggestions? The house needs too many things “fixed” and is not “move in” ready. Would sending pictures to the listing agent to plead our case help? Any advice would be appreciated! Thanks!

  8. Lee Shaw 03. Mar, 2010 at 8:30 am #

    I’m looking at a 12 unit apartment building the After
    repaired value is 280,000. It is bank owened and needs
    60,000 in repairs. The bank is asking 189,000 which
    to me is retail price. Only 3 units are rented and the
    railing is out of code. How would you negotiate this
    with the bank?

  9. Sean Terry 03. Mar, 2010 at 8:46 am #

    Hey Lee, How many days has this property been on the market? This will determine how aggressive you can negotiate with the bank. Also I assume you’re paying cash as I don’t know many commercial banks that will finance this deal. Let me know and I can answer the question more accurately. thanks!

  10. Lee Shaw 03. Mar, 2010 at 9:17 am #

    The bank foreclosed on it in Nov. I have the funds to
    rehab but not to purchase. What are the odds of the current bank making the loan in ordet to creat an asset
    out of a liability. Of course no other bank will make the
    loan until we turn the property around

  11. Sean Terry 03. Mar, 2010 at 9:38 am #

    I would be aggressive on my bidding if they’ve owned it since 11/09. A commercial lender won’t touch it but a hard money lender will, especially if you get it at a good price. OK, here’s what I’d do:

    1. Find 3 comparable sales for 10 to 20 unit buildings in a 1 to 5 mile radius in the last 90 days. You’re looking for sales much lower than the subject property. This will show the bank a justification for a lower price.

    2. Bid in the $150’s to $160’s with a 10 day inspection peorid and $5K earnest money deposit. They will counter or ask for highest and best. Stay firm on your offer.

    3. If they counter give a little to get the bid accepted and open escrow, in your 10 day IP get a home inspection and at least 2 contractors bids preferbley higher the better.

    4. 2 days prior to the IP ending send the agent the comps, Home inspection, and bids. Tell them that the numbers don’t work and you need to cancel or lower the price to an acceptable number that works for you. Let them know you’ll go non refundable if the lower number is accepted.

    Word of caution, make sure you have your had money lender nailed down during the inspection so you’re confident you can close.

    Be prepared to walk from the deal if the numbers don’t work, don’t get emotional involved in the deal, as it’s only a deal and there will be many more to come.

    Hope this helps,


  12. Lee Shaw 03. Mar, 2010 at 9:58 am #

    Thanks for such a timely reply and the great advice.

  13. sharon 08. Jul, 2010 at 10:51 pm #

    Hi Sean,

    Here is my dilemma. I am buying a property in NYC that I am told will be jointly decided on by the developer and the bank — the bank will receive/review the offer first. The developer is in default to the bank for $11M and has 3 sponsor units that he is trying to sell.

    I have made an offer on a property that is asking $5.6M, my offer was for $4.5M after bringing in an architect and a contractor. The building is supposed to be a luxury one, but has affordable housing finishes (C-grade cabinets in the kitchen, purgo floors throuough apt, low ceilings randomly put up, etc.) Apt has never been lived in and has been on the market for 5 years. Architect expressed concern about condition of mechanicals and found that the ductwork was not insulated even though broker is insisting it is insulated.

    Broker suggested I hire an engineer to do an engineers report as she thinks the architect is trying to jack up his renovation fee. I think I made the right offer price but am receiving lots of resistance from broker (I think my broker is intimidated by the seller’s broker aka the bank — this is just a hunch)

    Can you tell me (1) if I made the right offer, (2) Do I need the further expense of the engineer’s report (3) What happens to apts that are on the market for more than 5 years (in NYC??)

    Thanks for your advice. Please email me back. I really appreciate your thoughts in this matter.


  14. baton rouge foreclosures 09. Jan, 2011 at 10:43 pm #

    This a good training even for new agents that haven’t sold their first property. Many clients complain about their experience when buying a home in foreclosure or in a short sale. This is just the lack of knowledge on the topic.

  15. albert 17. Feb, 2011 at 2:21 pm #

    I’M looking to buy a bank owned house, would I get a better deal or the same using cash?

    And should get my own realtor or use one selling the house?

  16. Lachelle 15. Mar, 2011 at 10:21 am #


    I am about to put in a offer on a bank owned property that is listed at $119,900, which was just reduced from $124,500 over the weekend. My agent did research and said the last time this home was sold it was sold at $149,500 but I dont know how long ago that was. I want to counter offer for $110,000 but I am fearful that they will get a better offer from someone else, knowing whats its worth, and I will lose out on this house. I am also afraid that the bank will not go down any lower because it was just reduced 4 days ago. The house is in good condition with just a few updates needed like kitchen appliances and new carpet. Can you please give me some tips on how to go about getting this house for the price that I want. I just think $119,900 is a bit much with the work that needs to be done to it before I move in

  17. TN Real Estate 20. Mar, 2011 at 9:25 pm #

    How do I flip a bank owned house? Can someone help me please!!

  18. Michael Pursell 29. Mar, 2011 at 5:10 am #

    Sean – need your advice/opinion. How do you go about making an offer on a Bank Owned Property when you need to sell your own house in order to afford to buy it? Do you think it will ruin our chances of getting the house if we put in a contingency that our agreement is contingent on us selling our house? Say 45 days at an agressive price? Any thoughts given your experience?

  19. April Peralta 30. Jul, 2011 at 10:24 pm #

    hi Sean, thanks for your tips need your advice 1st time home buyer:
    we put up an offer to a REO owned house under home path mortgage. list price was 209,900 – we offered 210,000 w/ 5% down requesting 3.5% credit towards closing cost, earnest money deposit was at 5K. the lender said the bank will counter offer – we’re willing to negotiate to up to 211K – the property is ‘as is’. how can we use other contingencies like inspection results for the counter?
    thank you very much!

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