Buying from a bank

Bank/REO, Fannie Mae, Freddie Mac, Short Sale, Bank Owned
Have you seen these labels on homes you've seen? These days, it's not uncommon to come across a property that is for sale by a bank. Ruling them out of your search could really limit the homes you could buy.
But buying a bank owned home tends to be a lot more stressful than a "normal" sale.

In my personal and business experience, I feel if you have more knowledge-the less stressful it can be.
So here's the stages of a bank owned property:

1. Pre-foreclosure: Homeowners who fall behind in their mortgage payments don't lose their home right away; rather, they are issued a notice from the bank wherein the default becomes a matter of public record. At this pre-foreclosure state, homeowners can still prevent the loss of their home by working out a deal with the lender -- i.e., a short sale.

2. Auction: Once the bank forecloses on a home, the home is often auctioned out to the highest bidder (in an attempt by the bank to recoup some of its losses). This is the second chance homebuyers have to buy a house for less money. If a sale does not take place, the homes officially become bank-owned property.

3. Bank-owned real estate: Often advertised as "bank-owned foreclosures," these homes offer homebuyers the greatest number of benefits.

Tips:

• Expect days to weeks for replies- buying a bank owned home is not ideal for impatient people
• Short sale homes don't take a "short" time- have flexibility with your settlement date. 
• Expect to pay more out of pocket- example: for both sides of transfer taxes & city/township certifications, etc.
• Shoot for between 15%-30% under asking price depending on the condition of the property.
• Make your offer contingent on inspection and bring a contractor with you on inspection day.
• Banks counter offers sometimes, but it's a good idea to give your best offer first

Realtor.com