The fact that a bank or loan company has the rights to a REO (Real Estate Owned) property and is trying to sell that property does not necessarily mean that the bank or loan company is going to sell the property at a bargain basement price.

Banks and mortgage lenders work in different ways, but they generally have the same goals: To get the best price that is available in the current market, for the house that they are selling.

Banks and Loan Companies see a REO as a sellable asset, but a sellable asset that is not being used to its full monetary potential whilst it is in their hands and on their balance sheet. Selling this asset will generate a certain amount of money for the bank or loan company, and hopefully the sale will also produce a profit, which the bank or loan company can then use to invest and make more money.

Banks want to make money, and as is the nature of the finance world, they make this money buy investing monies received from peoples bank accounts, loans and the sale of any assets into the stock markets. A REO property that a bank owns represents a future, potential financial investment that could be generating a profit if it invested into the stock market. Whilst the house remains unsold the bank is not making any money from it and so it is in the banks or loan company’s best interest to sell this property.

The reason that the bank wishes to use the sale of a property to invest into the stock markets is because shareholders, (who want to see an investment on the money that they have invested into the banks), normally own the bank or loan company. Maximizing the shareholders wealth is the main priority of the bank or loan company and so the more money that can be generated from the sale of a REO property the more cash the banks or loan companies can invest into the stock market and produce greater wealth for their shareholders.

Because a bank or loan company wants to receive the best price possible from the sale of the REO property they have absolutely no intention of dumping the real estate cheaply. In fact, such cheap auctions by a bank or loan company would be in complete violation of their regulations: banks and loan companies have to demonstrate to a range of people, including auditors, investors and shareholders that they are attempting to get the best price possible.

Due to the fact that banks want to sell the REO property as quickly as is possible, to release funds for further investment, as well as generate the best possible price to appease shareholders etc, they often have an entire department set up to manage their REO inventory and this department will be responsible for analyzing all bids received by the bank or loan company and generating an acceptable price for the property.

The best option for the bank or loan company is to produce a quick bidding war that will increase the re-sale value of the REO property, as well as also generate a quick sale.

To generate a bidding war banks offer various benefits and advantages to buying a REO property including offering the following advantages to the prospective buyers:

Once you (the prospective buyer) have been attracted to the property due to the benefits on offer by the bank or loan company, you will normally make the bank an offer on the property. The response of the bank will be to counter your offer (to demonstrate to investors, shareholders and auditors that they attempted to get the highest price possible).

This counter-offer is standard for the industry and you should decide what you wish to do as a result of it. If the price is acceptable you can accept the offer, if the price is not acceptable to you then you can counter the bank or loan company’s counter-offer with one of your own and have their REO department asses its quality.

Several individuals will probably review the counter-offer that you put to the bank or loan company before it is rejected or approved. The result of this action on the banks behalf will define how you react.

If they approve the offer, then all is well and good. If they reject the offer you should look at whether you are comfortable paying more or whether you feel that the price they are asking is either above market value or unacceptable to you.

If you chose to continue with the purchase once your offer is accepted, the bank or loan company will draw up a contract. It is essential for you to take a good look at the contract and maybe have your attorney go over it with you.

To discuss this topic Click Here to go to our Online Forum