Should We Buy a Bank-Owned Home or a Regular Home?

The Ins and Outs of Buying a House From the Bank

Realtor exiting a home for sale with "Bank Owned" sign in yard
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 Ethan Miller / Staff / Getty Images

When it comes to the ease of buying a house, it makes a difference whether the bulk of homes on the market are mostly foreclosures. If a regular seller is selling in a market dominated by bank-owned homes, regular sellers need to compete on price with foreclosures, meaning that the seller needs to price a home in line with the prices of bank-owned homes.

Some asset managers in bank real estate departments handling foreclosures insist that their agents market their inventory just like any other home; some prefer the agents not to disclose that the homes are foreclosures. That's because foreclosure homes carry a stigma. In all fairness though, the bank is simply trying to compete in the open marketplace. 

Key Takeaways

  • Banks do not know the home like an owner does and are not likely to make any repairs to the home, even if the buyer requests it.
  • Banks normally do not negotiate with foreclosure buyers, and addendums usually change your offer.
  • Banks charge extra fees for any delays in closing past their chosen dates, where a person can be bargained with.

Conditions and Disclosures

Typically, when you buy a home, the owners know they can share details with you about its history. You can find out whether the kitchen sink ever backs up, when the roof was last replaced, and if there are any defects that a home inspection might not reveal. However, when you buy a bank-owned home, you're on your own. You're buying with unknown factors and have very little recourse.

Banks rarely make repairs to homes in their portfolios. They generally don't pay for a pest inspection or give buyers a roof certification or sewer inspection. If your home inspection discloses a major problem, and you submit a request for repair, the bank most likely will ignore it. In contrast, a regular seller is much more likely to negotiate a repair request and fix problems for you.

Negotiating to Buy a Home From the Bank

Some banks won't even look at an offer unless the buyer submits a mortgage preapproval letter from the bank's chosen lender, which means it can take even longer to submit an offer in the first place. It can sometimes take up to two weeks or longer to get a response because there is a high volume of listings a bank's asset department handles.

When the bank does accept an offer, it often generates a bank addendum that, for all practical purposes, replaces the offer you submitted. The bank addendum can consist of 10 pages or more. Almost every important item that protects the buyer is altered.

If you're buying a bank-owned home, it is a good idea to have your lawyer review the contract because the verbiage is sometimes difficult to understand.

Banks Charge Fees for Closing Delays

In northern California, you often end up with a southern California escrow company handling the transaction. The distance delays paperwork. In addition, if the buyer's lender needs a couple of days to release the file from underwriting, the bank often charges the buyer a fee. Regular sellers are generally more forgiving and relaxed about extensions.

Other Bank-Owned Home Issues

Bank-owned homes tend to come with other issues besides dealing with the bank. The home may have been sitting for a while and have some unwelcome residents, such as the previous owner who ignored the eviction notice.

Fees for lawyers, inspections, and repairs will add up. You might find that you're paying much more for a cheap bank-owned property than you would have for one sold by an owner. Something to note is that there are homes in foreclosure that are in excellent condition, but the competition to purchase them will be stiff, and the bank will choose the offer that makes the most money for it.