REO paying closing costs?


would this ever happen? … that the bank would pay the closing costs, or agent fees?

A lot of times the banks contract an agent to list the home. Each one has guidelines as to which closing costs they’ll pay. By the time the bank has an REO, they’ve spent a lot of money to acquire the property and become stingy. Most REOs in my area are asking FMV or damn close to it. Get them BEFORE the bank does. That’s where the money is.

I buy REOs almost exclusively. I get them to pay the 6% real estate commissions and they pay for the title policy. I get them to pay the same fees as if a natural seller were involved. I have never had much pushback on that.

Cool, encouraging to hear. Jason, what area are you in that you’re experiencing that kind of market?

I just looked at a Countrywide house that said they would pay $2500 towards closing costs. However, the house was pretty much listed at the ARV and needed about $50k to update it. (orange formica kitchen :o )

Countrywide reviews the price every 30 days (so I’ve been told), so we’ll just keep watching this house.

? If you buy REO almost exclusively, how do you do it and make money? I’ve seen REO’s from time to time that where 20k or so below market that didnt really need anything other then paint. I can see how you might make some change there is you FSBO, but in my area like w/ others REO’s are typically at or just barely below MV. I’ve not seen to many banks come off the sale price more then a couple thousand…Is there something I’m missing here?

When buying REO’s the newer the listing the more likely the bank is NOT to move on the price. The house we are closing on tomorrow was listed on the market for around 120 days or so, they just lowered the price again down to $54,900, and we picked it up for significantly less than that. To me it has been all about timing. Every once in a while they list one that is a deal right off the bat, but for the most part you have to wait it out. I try to focus on REO’s that have been on the market a while.

What JaredfromIndiana said. It really depends on how long that house has been on the market and how many people are chasing them. I find a house that is asking close to what I can make money with and I make the offer of what I need to get the house for to make me money. I will buy a house with 1 major problem (roof, foundation plumbing, etc.) along with paint and carpet. But not multiple major problems. That problem is usually enough to allow the property to linger on the market until the price comes down.

This is probably a regional issue also. What works here may not work there.


I have a buddy that just picked up home (REO) to live in for 185k. It appraised for 230k and it sat for probably 6 months…needed new shingles, stucco needed repairs, paint, carpet and basic fixture updats…all in all though, it was a pretty good deal.

A bank selling an REO is similar in respects to an individual selling their own home but without the emotional attachment. But for the bank every day/month counts because the REO is a nonearning asset. It’s dead money just sitting their costing them their average cost of funds plus expenses and opportunity costs. The longer the property sits on the market the more likely the price and terms will become negotiable. Remember, in a buyers market you are in the driver’s seat. You have the cash and the bank has the nonearning asset and is eager (generally) to make a trade.

bluemoon06: i like your rule of 1 major defect and no more. sounds very simple and surely saves you time and money and headaches.

It is worth mentioning that banks are audited by the Fed and the FDIC and are asked to show their non-performing assets. If that number creeps above 1%, the Fed or FDIC can shut the bank down if they do not get rid of them. If you happen to have put in a lowball offer on a REO (even 6-12 months ago), you could end up getting a call from the agent right after an audit. The agent has been told to “unload” these properties no matter what offer they have sitting there. The key is patience and making a lot of lowball offers. I just started (it is one of my strategies) doing the REO offer thing and will let you all know if I strike gold.

Yes, my REO’s 1 major is the hole in the roof! I’d like to get some tarp on it at least until it closes. Sheesh. Hopefully, there’s nothing structural from the water damage.

Regarding banks and nonearning assets; all federally insured financial institutions are regulated by the FDIC, OCC, FED, OTS or NCUA. Examiners, I used to be one, look at nonearning assets as part of their overall examination review. They do become concerned when the number hits 1% or more as a general rule.

However, this is not a reason that a bank will be closed in and of itself. There are five other major areas of bank operations that are included in the review the most important of which are capital, liquidity and management. Things have to be very bad before the government will shut the doors of a bank.

Management will simply have to prove to the examiners that they have a plan of action for reducing the level of their nonearning assets and this does not include a firesale. They have to get the numbers down in a safe and sound manner.

This is a little off topic but I was wondering.

REOs are owned by the bank obviously. Can you still get a loan from that same bank or another local bank to purchase that property?


Adam…yes you can apply for a loan from the bank. In fact some banks may want to preqauilfy you before buying the property even if your not using them.

I am in process of buying a REO TH from HouseHold Bank and they wanted to preqauil me. I refused and eventually they broke down and accepted a faxed credit report from my broker with the scores. That is all they need to preqaul someone.

As for terms. Mine appraised for 830K and they were asking 650K. I got them down to 590K with little hassel. I offered 570K with 3% closing, they countered with 600K and 10K in closing, I countered with 590K and 3% and they accepted. Was very easy and once I update the TH it will be worrth over 950K with about 45K in work to be done. So this is a great investment.

Also if your creative, I put in my offers with REO that I have 3-5business days (depending on my appraisers schedule) to have an apprasial done and if the appraisal comes in at an acceptable number I will proceed with the purchase, otherwise I can cancel the contract and get my escrow funds back. Also I like to escrow about $10,000 since it gives the bank securitty I am serious and I have yet had a bank stop me on the right to get an appraisal done first. I look at it as a great out so if the property does not appraise with enough EQUITY I can walk away.

My experience has been different. In my experience, banks will accept almost no contingencies. Also, they will usually not loan the buyer the money. They almost always want proof of funds or a pre-qual letter. Finally, they pay absolutely no attention to any deadline that you put in your offer and will “shop” your offer to get a better deal. I have bought many REOs, but I hate dealing with the banks.

I’m not saying that others have not had a different experience, but this has been mine.


Mike have your tried adding some escape clauses to the contract. I know we live in 2 different markets so the banks will work differently b/c of holding cost and activity on the property they are trying to sell. The majority of my REO purchases have come from Household, Citibank, Bank of America, Chase. The reason for this is because the realtor i use, was in the REO department with some of these banks and has a relationship with people in the banks. Does this give me an IN on getting the deal, not really, but she knows the extent the banks will go on a contract if probably asked. Also many investors want to tie up properties with little to no $$$, when dealing with an REO, I offer 10K and up at times if i think its a great deal. Usually the loans going to close within 3 weeks and I will get the money back since my closing cost will not be as much as the escrow I set up.

Mike have your tried adding some escape clauses to the contract.

Yes, when I was new to REI, I did try putting in contingencies. I was able to get a 5 day inspection period on a couple of occassions, but not much else. Since I now inspect all the properties myself, I don’t need this contingency any longer. In fact, I usually just make a cash offer with no contingencies (I inspect the house when I look at it). Like you, I have also found that giving a significant deposit makes a difference.


I have experienced the same w/ REO’s. So I’ll give this a bump!!