Most people are familiar with bank owned properties. Banks, credit unions, and mortgage companies lend money to a homebuyer. Due to reasons beyond the borrower's control, the ability to maintain regular payments is sometimes affected. In this case, the mortgage loan becomes delinquent. After sequential delinquencies, the mortgage goes into default status, in which the lender prepares to foreclose.

Banks are not real estate firms. Their primary business involves lending money. For this reason, when a foreclosure occurs, banks and mortgage companies want to rid themselves of such properties. One method of selling the property involves a public auction, which allows potential borrowers to bid on the property. If the home is sold at auction - great. If not, the property returns to the bank, and becomes a REO or real estate owned.

Once a foreclosure is returned to the bank's inventory, getting the property at a favorable value is possible. Some banks have an entire department that strictly handles the sale of foreclosures. In this case, buying the property for a steal may be a little difficult because the foreclosure department is able to focus on selling the property at market value. On the other hand, smaller banks do not have this kind of time; thus, they are more apt to sell foreclosures at a break-even price, which could be below market value.

To purchase a bank-owned property, buyers must submit an offer. Each property will include a list price. If desperate to sell the property, banks are inclined to accept reasonable offers. If not, the bank will respond with a counter-offer. Buyers can either accept the new terms and price, or counter the bank's offer.

In an effort to sell the property, banks are willing to negotiate. Sometimes, the bank may make certain repairs. Even though bank owned properties are sold in "as-is" condition, buyers should include a statement within their offer which asserts that purchase is contingent on property inspection. For example, if the property has extensive damage and requires too many repairs, the buyer can walk away from the deal. However, if the bank is aware of extensive damage, they may be willing to finance the repairs and improvements.