So you are ready to purchase a home and one of your options is to purchase a REO or Bank Foreclosure home as it is mostly known. Here is a list of things that you should know when you decide to make an offer on such a home:
- Make sure that your REALTOR DOES NOT send a whole bunch of addendums and comps with the purchase offer. In fact the only that the banks need is a Purchase Offer along with the Agency Disclosures and a pre-qual letter.
- Most banks require the buyer to sign a 15 or more page addendum (generic for every State) that supersedes the Purchase Agreement.
- On that addendum your agent must estimate as close as possible the closing costs that the seller (bank) will pay on behalf of the buyer (FHA/VA allowable costs, escrow fees, property transfer taxes, home protection policy, termite report fee, termite needed repairs, etc.). The bank WILL pay the lesser of buyer’s actual costs or the estimated costs agreed on this addendum.
- Foreclosure properties are priced somewhere between the BPO (Brokers Price Opinion or CMA) that the banks get from a couple brokers and the current appraisal (usually electronic) that they have for the property.
- It can take anywhere from 2 hours up to 2 weeks to get a response from the bank on the offer, depends on how busy the bank is.
- Buyer MUST submit a pre-qualification letter (sometimes from the listing bank) along with the offer. It is not a requirement for the buyer to use them for the loan.
- The majority of the banks will NOT do a counter offer. They will either accept the price on your offer or not.
- Some banks will NOT do any repairs to the property.
- “Subject to satisfactory home inspection”, is the only contingency that the banks will accept.
- VERY IMPORTANT – Banks really hold the closing date that agents put on the offer. It is better to put a few extra days than needed. They will charge a per-diem fee if the closing date delays. It usually takes 45-60 days for an REO to close.
Banks usualy list the REO properties that they can’t sell right away in the MLS, so some of the foreclosure homes that are listed in the MLS are NOT such a great deal as many might think. Your Realtor should run the comps on the REO home that you want to buy and go over them with you before you actually write an offer to that property. Sometimes another home down the street that is listed as a regular sale could be a better deal tham an overpriced foreclosure property. Your Realtor should advice you on that!
There are some more things to know and requirements about REOs, that are more specific to the bank selling the property.
George Alexiou
I had heard from some other Realtors in other states that a few of the foreclosure selling Banks require a replacement of the State Purchase contracts with contracts that THEY (Banks) have issued but I had never seen or heard of that here in California… Well up until this week!
I had made an offer on a Bank owned foreclosure property on a standard California Real Estate Residential Purchase contract and 10 days later I received a replacement Bank produced Purchase contract along with several other Addendums. That Bank produced Purchase contract is drawn in such a way that releases any and all liability from the Bank and its agents and puts a lot of risk to the buyer, especially when combined with the attached Addendums that have provisions that clearly are in conflict with those of the Purchase contract.
Another problem that I encountered is that some of the listing agents on these properties have NEVER actually physically been on the property that they list and also have absolutely NO knowledge of the contracts and Addendums that they receive from the Bank and send out to the Buyers and their agents. When calling some of those agents who list foreclosure properties with specific questions regarding the property or the contracts involved in the transaction the usual answer is “I don’t know… that’s what the bank send me, so tell your buyer to either take it or leave it”! Some also include incorrect information in the MLS which proves that they have never been in the property. I honestly feel ashamed for such agents who call themselves Realtors and give a bad name to the rest of us!