How to Find and Tour Bank-Owned Homes

Once a lender has prepared a bank-owned (REO) home for sale, it usually hires a local listing agent who specializes in REO work. That agent puts the home on the multiple listing service (MLS), where it shows up on most home search sites. For how homes get to this point, see what is a bank-owned (REO) property.

REO homes can also appear through:

• Government seller websites for homes owned by HUD, Fannie Mae, Freddie Mac or the VA.
• Online auction platforms, which some lenders use for REO inventory. These sales follow the platform's terms, which may include buyer's premiums, short deadlines and limited contingencies, so read them before you bid.
• Bank websites, since some banks and credit unions post their own foreclosed properties.

Listing labels vary. You may see bank-owned, REO, lender-owned or corporate-owned. A home described as a foreclosure may still be headed to auction rather than owned by the lender, so check the listing status.

You can search bank-owned homes on RealtyTrac by city, county or ZIP code, then filter by price, property type, bedrooms and size. Saving a search lets you see new listings sooner, which matters because well-priced REO homes can draw offers within days.

When a listing looks promising, read beyond the price:

• Price history. Several reductions can signal a seller that is more open to offers. A home relisted after a failed contract may have an issue a previous buyer found.
• Days on market. A long listing period may reflect condition, pricing or location.
• Listing remarks. Phrases such as cash only, may not qualify for FHA, sold as-is or see agent remarks for offer instructions often point to condition or financing limits.
• Photos. Missing appliances, stained ceilings, boarded windows or few interior photos can all be clues.
• Comparable sales. Compare the price with recent sales of similar homes nearby. A comparative market analysis from your agent should account for condition, since a home needing work rarely sells for the same price as a renovated one.

Federal agencies and government-sponsored enterprises take back homes when loans they insured or own are foreclosed. Each sells through its own process, and the rules change, so check the program's current terms before you make an offer.

• HUD homes. Homes from foreclosed FHA-insured loans are sold through the HUD Home Store website. Offers generally must be submitted through a HUD-registered real estate broker, and listings indicate whether a home is expected to be eligible for FHA financing.
• Fannie Mae HomePath. Fannie Mae lists its foreclosed homes on its HomePath site, with offers submitted through the listing agent or an online system.
• Freddie Mac HomeSteps. Freddie Mac has marketed its foreclosed homes under the HomeSteps name. Check Freddie Mac's current site for where its listings appear and how offers are submitted.
• VA homes. Homes from foreclosed VA-guaranteed loans are usually sold through listing agents working for the VA's contractor.

Several of these programs give owner-occupant buyers, and sometimes nonprofits and public entities, an initial period to make offers before investors can. If you plan to live in the home, this window can mean less competition. You may be asked to certify that you will occupy the property, and misstating that can carry penalties.

The REO listing agent is hired by the bank or asset manager and represents the seller. These agents often handle many properties at once and follow the seller's rules for showings and offers. A buyer's agent who knows how REO listings work locally can get you in faster and find out how offers are being handled.

Your agent can usually:

• Schedule showings through the lockbox or the listing agent's access system.
• Ask whether the seller is already reviewing offers or has set an offer deadline.
• Find out whether utilities are on and whether the home is winterized.
• Get the seller's offer instructions and required forms.

If several homes interest you in the same area, try to tour them on the same day so you can compare condition side by side. Ask your agent to find out whether a home has been under contract before and fell through. The listing agent may not say why, but a cancelled contract after an inspection is a reason to look harder at the same systems.

For how to choose that agent, see how to buy a bank-owned home.

Most REO homes are empty, and many have had the utilities shut off for months. Prepare for that:

• Tour in daylight, and bring a flashlight in case the power is off.
• Bring your phone or a camera to photograph each room, and a notepad to record questions for the inspector.
• Wear sturdy shoes. Vacant homes can have debris, loose flooring or damaged stairs.
• Do not turn on water, gas or breakers yourself. A winterized home's plumbing has been drained, and restarting it without a plumber can cause leaks or flooding that you could be held responsible for.
• Only enter with your agent or with the listing agent's permission. A vacant home with a lender's notice on the door is not always for sale.

That last point matters. A zombie property is a home the owner has left during foreclosure but that still legally belongs to the borrower. It is not bank-owned, and entering it without permission can be trespassing.

A showing is your first chance to rule a home in or out before spending money on inspections. You are looking for signs of problems that would change your offer, your financing or your interest.

• Water. Stained ceilings, warped floors, buckled drywall, standing water in a basement and musty smells.
• Missing components. Gaps where appliances, cabinets, light fixtures, the furnace, the water heater or copper pipes used to be.
• Signs of entry. Broken windows, forced doors, graffiti or evidence that someone has been living there.
• Roof and structure. Sagging rooflines, missing shingles, large foundation cracks and doors that will not close.
• Systems. The age of the electrical panel, furnace and air conditioner, and any obvious damage.
• Exterior. Drainage toward the house, damaged siding, overgrown trees and the condition of any pool.

Take photos and notes for each home so you can compare them later. Anything that worries you should become a specific item for your inspector. Because REO homes are sold as-is, the tour helps you budget, but it does not replace a home inspection. See inspecting and negotiating on REO properties.

After a few tours, narrow your list to homes that fit your budget once likely repairs are included. For each one, consider:

• A rough repair estimate, ideally with input from a contractor for anything major.
• Whether your financing fits the condition. A home that needs significant work may suit cash or a renovation loan such as an FHA 203(k) better than a standard mortgage.
• For investors, the after-repair value and whether the numbers still work with holding and selling costs.
• How much competition to expect, based on price, condition and any owner-occupant window.

When you are ready to make an offer, have your documents ready first; see proof of funds and pre-approval for bank-owned offers.