Bank-Owned Properties: What They Are and How to Buy One
Today’s real estate market can be challenging for homebuyers. A sustained rise in prices has made the market increasingly expensive, and competition for properties can be intense. Bank-owned properties may offer rare bargains in this market and may even give ordinary homebuyers an edge over big-money investors.
What Are Bank-Owned Properties?
Bank-owned properties are also known as real estate owned, or REO. These are properties that have been repossessed by a bank or other lender.
In most cases, REO homes have been seized in foreclosure after the owner defaulted on the mortgage. When that happens, the property may first be put up for auction. If there isn’t a high enough bid on the property, the lender that owns the mortgage will take it over.
A property may also become bank-owned if a borrower who can’t afford the mortgage agrees to voluntarily turn over the deed to the lender. This saves both parties from having to go through the foreclosure process.
Opportunities for Bargains with Bank-Owned Properties
Lenders are usually eager to liquidate homes seized in foreclosure. “Owning the property is a last resort for banks,” says Rebecca Hidalgo, designated broker for real estate firm Integrity All Stars.
The reluctance of lenders to handle repossessed properties is both good and bad for creating buying opportunities.
On the one hand, it can make good deals available. But the downside is that the market is limited because banks are eager to find alternatives to repossessing properties.
“The market is currently small because banks are reluctant to re-enter property management,” Hidalgo says. “If a homeowner were in danger of losing their home, the bank would much rather work with them on a loan modification than take ownership of the house.”
However, opportunities in bank-owned properties may be on the upswing. In the first quarter of 2025, the number of new foreclosures rose to the highest level in five years, as did the percentage of mortgage balances with payments that are 90 days or more overdue.
These trends could mean more properties being taken over by lenders in the months ahead.
[See: Best Low- and No-Down-Payment Mortgages]
How to Find Bank-Owned Properties
So how can you find these properties? Here are several potential sources:
— Local lenders. Check to see if banks and credit unions in your area have properties listed for sale.
— Government-sponsored enterprises. You can search for REO properties in your area through the Fannie Mae HomePath program and the Freddie Mac HomeSteps program. Both of these programs offer a “first look” to buyers who intend to occupy the home. This can give you an advantage over absentee investors, who aren’t allowed to make a move during the first 30 days a property is on the market.
— Federal agencies. The U.S. Treasury Department and the Federal Deposit Insurance Corporation may list properties they’ve seized and are up for sale.
— Local government entities. Sheriff’s departments and other local government agencies may list confiscated properties for sale.
— Realtors. Check for real estate agents in your area who specialize in REO sales. If you already have an agent, they may be able to recommend -someone with that specialty.
— Real estate websites. Online marketplaces such as Zillow and Realtor.com have special listings for foreclosure properties.
[Read: Best Mortgage Lenders]
How to Buy a Bank-Owned Property
Finding a bank-owned property for sale is just the start. You need to be prepared for a process that is significantly different from buying a property offered by a private seller.
Bank Sellers Are Less Flexible
Bank representatives are obligated to show that they’ve gotten a fair price for properties they sell. That means that there may be some room for negotiation, but not much.
This inflexibility also extends to seller concessions. A private seller may agree to make certain repairs before the deal goes through, or make modifications to the contract language. But lenders don’t want those complications when they’re selling a property.
Andrew Fortune, owner and real estate agent at Great Colorado Homes, says compared to individuals who are selling a home, banks “are less likely to appease any non-standard requests that a homebuyer may have.”
Properties May Not Be in Move-in Condition
Because banks want to sell their properties with as few complications as possible, they don’t want to spend time making repairs and cosmetic improvements. This means it’s up to you to assess any flaws in the property.
Though the laws vary by state, home sellers are typically required to provide a disclosure statement that details any problems the seller is aware of. When the seller is a homeowner who has lived in the property for a long time, they can be expected to know those details. But that may not be the case with bank-owned property.
“There are usually no seller disclosure statements because the banks don’t know any previous history,” says Hildalgo. “You need to conduct thorough due diligence to ensure there are no issues with the home.”
Financing Must Be Immediate
Because banks want an efficient sales process, you must be able to demonstrate that you have the immediate financial means to buy the property. You won’t generally be allowed to take over the existing mortgage on a, REO property.
“Banks typically won’t even acknowledge your offer until it is backed by a proof of funds, or a pre-approval letter from a reputable mortgage company,” says Fortune. He adds that banks “love cash deals, so if you’re financing a home with an FHA loan and you’re competing with a cash offer, the cash will likely win every time.”
Have Your Team Lined Up
Buying a home is generally a coordinated effort involving a real estate agent, a lender, an appraiser and a lawyer. Buying an REO property is no different, except that the seller won’t want to wait while you get this team together. You should make arrangements with those professionals in advance so you can move quickly as soon as you find a property you want to buy.
“Banks don’t like to work with buyers who can barely make the deal work. They want strong buyers who are the most likely to close and get the property off of the bank’s books as soon as possible,” says Fortune. “The No. 1 rule: Don’t be difficult.”
[SEE: Current Jumbo Mortgage Rates]
How Much to Offer for a Bank Owned Property
Here are three steps to help you determine how much money you should offer on a bank-owned property:
1. Research comparable properties. Look at recent sales transactions for properties that are similar to the one you’re considering. Compare the asking price to the price range of recent sales.
2. Consider the condition of the property. Homes typically become bank-owned because the prior owner wasn’t able to pay the mortgage. Financial problems may also have led to deferring the maintenance and repairs necessary to keep a home in good condition.
Worse, knowing that they’re going to lose the home may cause people to intentionally damage it.
“Sometimes, homeowners become angry that they are losing their home, so they will rip cabinets off the walls or throw eggs at them,” Hidalgo says. “Some of these houses can be trashed, and if you don’t do your due diligence, you will not have recourse if something is wrong with it after closing.”
Anything you’ll have to pay to fix up the house should reduce the offer you make for it. So you may want to add a reliable contractor to your team who can give you an estimate of those costs.
3. Look at how long the property has been on the market. Since banks are interested in unloading properties quickly, the amount of time one has been on the market can have a big influence on the price they’ll accept.
“One of the primary keys is that they have their days on market milestones,” Hidalgo says. “Banks typically start on the high side, but after reaching the 100-day milestone, they will usually implement a price reduction. How much depends on the market.”
Pros and Cons of Buying Bank Owned Properties
Pros
— Properties may sell at a discount to full market value.
— Some sellers offer programs that give owner-occupied purchases an advantage over professional investors.
— Buyers can qualify for financing similar to other homes.
Cons
— Properties may be in poor condition, with little willingness by the seller to fix problems.
— Buyers must be knowledgeable about the local market and the cost of repairs.
— Buyers must be able to act quickly.
Is Buying a Bank Owned Property Right for You?
The real estate market is pricey and very competitive. If you’re able to find a bargain, there is usually a reason that the price is so reasonable.
In the case of bank-owned properties, that reason is often that the house is in need of some work — possibly major work. The onus is on you to assess what needs to be done and how it should affect the price.
Hidalgo says, “Buyer beware and do your research. If you don’t have the money, skills or time to put in remodel work on the home, you should avoid buying a bank-owned property.”
However, if you are aware of the issues with a property and are prepared to deal with them, a bank-owned property may be a good opportunity for you.
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Bank-Owned Properties: What They Are and How to Buy One originally appeared on usnews.com