How to Buy Bank Owned Commercial Property

Bank owned property, or real estate owned (REO) property, is real estate that was once financed by the bank but defaulted on by the borrowers, leaving the bank to take the property back into its possession. Because banks are generally not in the business of real estate brokering or property management, they turn around and list foreclosed properties for sale on an "as is" basis in order to sell them as quickly as possible. As is means that the buyer of the property is responsible for the condition of the property, whatever it may be, and that any necessary repairs are the sole responsibility of the buyer, unless otherwise negotiated. Just as banks finance residential properties, they also finance commercial properties and, in turn, often have REO commercial property for sale.

Steps

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    Find bank owned commercial property listings. There are a number of ways you can go about finding these properties:
    • Consult with a real estate agent that specializes in bank owned property. It is especially helpful if you find a realtor with experience in both commercial and REO properties.
    • Call local banks and ask to speak to someone in their REO sales division. Most banks have either a specific department or a manager that is designated to handling the branch's bank owned property.
    • Monitor your local newspaper's real estate auction listings. Banks always attempt to auction their REO properties before listing them for sale. Statistics show that most properties that go to auction are never bid on. Therefore, auctions are a good way to identify commercial properties that are soon to be on the market.
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    Save money for a down-payment and inspections. Unlike residential property loans that sometimes allow for little or no money down, you can expect to be required to put down at least 25 percent of the sales price for a commercial loan.
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    Obtain a commercial loan pre-approval. You will need to provide the following information in order to qualify for a commercial loan:
    • Your business plan. This does not apply if you are purchasing a multi-family property that you will be living in. Instead, you will need to provide current leases of any existing tenants or signed leases for tenants who will be moving in.
    • Your business's financial records. This includes bank statements, tax returns, income and expense reports, balance sheets and whatever else the lender requests of you to prove your ability to repay the loan. If the commercial property you plan on buying is a multifamily housing unit, then you will need to provide your own financial records.
    • Proof of down payment funds.
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    Gather information from the listing realtor before making an offer:
    • Copies of any existing inspections.
    • Any property repairs the bank has agreed to pay for.
    • Whether or not there is a special "as is" form that you will need to sign.
    • The length of time it will take the bank to accept, reject or counter your offer.
    • The method of delivery for your offer.
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    Make an offer with the listing realtor. Submit an offer to buy REO property using the following guidelines:
    • Calculate how much closing costs are going to be, and be sure to account for them when determining how much you can afford to offer.
    • Be careful not to offer too low of a price, or else you risk having the bank not take you seriously as a buyer. Consult with a realtor who specializes in REO commercial property for guidance.
    • Include a clause that allows you to back out of the offer or counter with a new offer if building inspections reveal issues with the property that you deem as unsatisfactory.
    • Be prepared to counter offer. Banks rarely accept the first offer to buy REO property and generally respond with a counter offer. Take this into account when making your first offer, and be prepared to negotiate the final selling price.
    • Include your loan pre-approval with your offer.
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    Make sure the REO commercial property is within your acceptable standards of condition. Once your offer is accepted, employ the following professionals:
    • Building inspector. A building inspector will do a thorough assessment of the property's condition, and give you a write-up of any and all necessary repairs, as well as points of interest that you may want to consider improving upon.
    • Title agent. A title agent should do a complete title search to verify that the title is clean and that the property can, in fact, be sold.
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    Submit a counter offer if the property requires any unforeseen repairs that you wish to hold the bank accountable for. Renegotiate the terms until both parties are satisfied.
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    Work with your lender to close the deal. This involves providing any additional paperwork the lender and title company need in order to close your loan.

Tips

  • If the bank does not accept your offer the first time around, continue to watch the property. If it stays on the market for an extended period of time and you notice that the sales price is dropping, the bank may be more receptive to your offer if you submit it again.

Warnings

  • Be aware that just because banks want to sell their REO commercial property quickly, it does not mean that you will necessarily be able to purchase the property at below market value. Banks always aim to recoup the amount of money that their borrowers defaulted on, which is usually more than what the property is worth, or else the borrowers could have sold the property themselves.

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Categories: Buying Property