Things To Consider When Writing an Offer
on A Bank-Owned Property In Colorado Springs

Within the Colorado Springs MLS, there are several categories for bank-owned properties. When searching for bank-owned properties on third party sites, all categories need to be selected, so a bank-owned property in one of these categories is not missed during the search. Some third party sites only have "Bank-Owned" or "REO" (real estate owned) categories, so it isn't clear if the other categories fall under these two. The best way to search for a bank-owned property is to request a custom Colorado Springs MLS property website [link to Perfect Home Finder Form]. Bank-Owned categories include: Bank-owned, REO, foreclosure, HUD REPO, REPO (not HUD or VA), VA REPO, and Government Owned.

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When Writing An Offer On A Bank-Owned
Property There Are Several Things To Consider

The bank has already taken their loss by going through foreclosure with the previous owner. Gone are the days of purchasing a bank-owned property for pennies on the dollar - at least in Colorado Springs. We have found that banks will not negotiate much on the list price of the home that is in good shape. We have tracked this with our buyers, and banks will not accept offers below 97% of list price. Offers that come in lower, can expect a counter at 97% or higher. The banks have done their homework and have priced the home below market and don't have to negotiate on the price to get a contract.

But that is OK, if you do your homework, or at least your Colorado Springs real estate agent has, you should have an idea what the market value is for the home. Bank-owned properties in good shape, are typically priced about 10-15% below market value, so they are still a good deal. Bank-owned properties that need a lot of repairs will be highly discounted to appeal to the investor, those that have the cash to make the repairs.

Bank-owned properties are a hot commodity in Colorado Springs, so there seems to be fewer bank-owned properties on the market. Some believe it is because the banks are holding the properties, others believe the properties are selling during the short sale phase before going to foreclosure. I believe it is a combination of these and the fact that when a bank-owned property goes on the market, it is under contract quickly because it is the deal of the day. I also believe we are seeing fewer homes that are gutted by the previous owner, this may be because the banks are paying the owners a stipend if they leave the property in good condition.

When purchasing a bank-owned property, you are required to agree to purchase the home "as-is." This means that the buyer understands that in most cases, the bank will not make repairs to the home to complete the sale. We have found that this is true, for the most part, for the lower priced homes that appeal to investors. For the higher priced homes that will be owner occupied, the banks are more willing to negotiate on this issue, but it does depends on the problem. We have had banks replace water heaters that cracked due to extreme cold before winterization. I suspect it is to make the home habitable for the buyer on the day of purchase.

You can't hurt the feelings of the seller, the bank, so low-ball offers are not unusual. But be careful, if it is your dream home and will appeal to other buyers, you may lose the deal by starting low and risk someone coming in and making a higher offer. We have had buyers lose their dream home because someone else out bid them.

It is very common to have multiple offers on one very well priced bank-owned home. A very common tactic for banks is to request "best and final." By doing this, they give all buyers/bidders the same chance to improve their offer. We recently worked a deal for a buyer who initially offered full price on a home the day it went back on the market after a buyer was unable to get financing. The agent said they had received 10 offers in a two hour period. All were given a "best and final" opportunity. Our client chose to increase his bid $5,000 over list price of $175,000. He lost the bid to someone higher or with better financing.

Making an offer on a Colorado Springs bank-owned property is no different than making an offer on a resale property, except the seller is a bank. The bank should respond relatively quickly to all offers. Most banks will entertain 3% toward buyer closing costs. After the bank has negotiated the sales price (usually in writing, sometimes verbally depending on the bank), they will require the buyer to sign their bank addendum. Read over the addendum very closely, they override many parts of the sales contract and are always in the bank's favor. If there is something you don't understand, make sure to ask for clarification in writing or a modification to the addendum.

If you are purchasing a home that sat empty over the winter, make sure the property was winterized before the first freeze. Winterization is when all the water pipes are professionally drained and where there is standing water, such as toilets and drains, anti-freeze or something similar is added. If a home is not winterized in time, and the heat is turned off, there is a chance of frozen pipes. I mentioned the frozen water heater above, well the pipe to the refrigerator water dispenser also froze and was discovered during inspection. Dishwashers are another concern. When a home is winterized, the plumber will post that the home is winterized on the door and on every water source, giving the date the winterization occurred.

Because you are purchasing the home "as-is," it is even more important that you conduct an inspection on the property, so there are no major surprises. A good inspector will also identify any deferred maintenance of the previous seller, so you truly understand what you are buying.