Buyer Beware When Purchasing REOs

I’ve had many clients ask me to find them a good deal on a REO, or bank owned home. They have the impression that REOs are a great way to get good deals on real estate. This is true, you often times can get a good deal. However, buyer beware. Banks have recently been sneaking language into their mandatory addendums that effectively makes buyers responsible for excise tax. Buyers get a not so nice surprise at closing when they see that they owe this money. Excise tax is 1.78% of the sales price in Washington State. Therefore on a $500,000 home purchase excise tax is $8900. What’s worse is buyers typically cannot back out of the contract at closing so they must choose either losing their earnest money or paying the excise tax. Bank Owned Home

The properties owned by government entities Freddie Mac and HUD are exempt from excise tax so these contracts are safe from the excise tax clause. However it’s always a good idea to have an attorney look at the bank’s addendums before you sign.

Another thing to beware of in REO contracts is that their contract is very seller sided. Essentially the bank has all the time in the world to get you documents but you must strongly adhere to their timelines or risk having the sale be cancelled. For example, you might have little to no time for an attorney to review the contract. One client described it to me as “so basically they can do whatever they want when they want but I have to jump through hoops for them to meet their requirements and their timelines?” Yes, this client had it dead on correct.

They also conveniently relieve themselves of all responsibility for the sale. Properties are sold as-is, buyers often have to pay the $350 to de-winterize properties themselves for the inspection and pay to winterize back if they don’t want the property and sometimes buyers must pay for the $150-200 to obtain the condo resale certificates.

As long as you’re patient enough to deal with these nuances of the sale, yes you can get good deals on REOs.