Buying ForeclosuresThe Rules of Engagement
Ø No bank will even consider your offer unless you have been preapproved for a loan.
Ø Unless you are buying at an auction, you must select a REALTOR® with experience and training, with whom you are comfortable.
Ø The Seller (the Bank is the Seller) pays both his own REALTOR and your REALTOR. Even at auctions you are better off with you own REALTOR.
Ø You are better off not using the REALTOR who is listing the property as he or she represents the Bank and not you.
Ø REO (Real Estate Owned), REPO (Repossession), Bank Owned and Foreclosure (Home obtained at trustees sale)…these words are used interchangeable and mean basically the same thing, so don’t be confused by terminology.
Ø Banks will not consider you offer without a preapproval from your lender, and sometimes they will also require a preapproval letter from themselves as well.
Ø Banks usually price their properties below market value
o This causes excitement in the market and they usually get several offers all at one time.
o Due to the competition most bank properties sell at list price or higher
o Although banks will pay up to 3% of the sales price for buyers closing costs this will make your offer look weak and you will have to offer higher to accommodate the cost to the bank.
o Banks prefer all cash buyers or investors with 20% or more down to the buyer with a lower down, but several institutions have started a policy where they will only consider owner occupants during the first 15 to 30 days on the market.
Ø Foreclosures are usually distressed situations and many times the properties are not in good condition, although that is not always true.
o They will vary between totally trashed, where there is no kitchen and the walls are destroyed to pristine with everything in between represented as well
o No matter the condition some are crystal clean and some are so dirty you will wonder if you should touch anything with trash everywhere
o Sometimes all the appliances, fixtures and equipment are at the property and sometimes they are missing,
Ø Banks always sell the properties in “AS IS” condition.
o Sometimes they will make repairs if they are required by the appraisal, but not always
o Even if the property is damaged or appliances of equipment go missing after an offer is accepted they will not make repairs, their agreement says you are buying it “AS IS” and they are not guaranteeing that the personal property (i.e. appliances, fixtures and equipment) will be there or the condition at closing so it is “Buyer Beware”.
o Even if your inspection finds structural defects they will often times refuse to repair the property.
o Banks answer to not repairing properties is that they will just move on to the “next buyer”, and give you your earnest money back.
o Even if this does not make sense there is nothing you can do about it but write a new lower offer that accounts for the repairs and see what happens.
Ø Banks usually do not counter offers in the way you are accustomed to, instead they
o Send out a request for your “Highest and Best” offer, giving you a few hours to decide what that is and rewrite your offer. If you are at work when this happens you will have to take a break to handle it or miss out.
Ø Banks usually take anywhere from 7 days to 3 weeks to decide on an offer, so be prepared for a wait.
o Once they choose an offer they will send a counter offer and several addenda, which are multi page documents and your agent must read every word as some of it is tricky and could limit your options. You need to know what you are getting into and how to handle it.
o You can counter their counter and although they will try to buffalo you by saying you can’t do that. If you counter their counter they may reject you as a buyer and move on to the next buyer, so be aware of that.
Ø Do not fall in love with a bank owned property
o There will be quite a few offers on it and you may not get the home of your dreams...
o Be prepared to look at several properties at one time and select several that would work for you
o Write offers on all of them that will work for you
o Make sure there is an “escape” clause in the offer so that if more that one of your offers is accepted you can opt out of the deal, thereby selecting the property you like best of the ones that work for you.
o Since it takes so long for Banks to respond don’t stop looking and don’t stop writing offers until one of them responds to you.
I understand that sounds pretty hard
I wish it were different but it isn’t…
Remember the goal is to purchase a home and get the best deal possible!
Hang in there and while you are at it consider short sales…normal sales…and new homes….
BUT WHATEVER YOU DO IN THIS MARKETPLACE…PLEASE USE A REALTOR!