Buyers just want to get out and start looking at homes! Not fully aware of some of the upcoming challenges they may face, they are setting themselves up for a lot of frustration! It is so much easier on a buyer if they are given some basic information on some of the challenges and pitfalls in buying a REO (bank owned) home in today's market prior to looking at homes. Actually it is best to do this regardless of it being a bank owned or regular resale. Being prepared always helps when stressful situations occur!
The Offer, Multiple Offers & Highest and Best: First you need to be aware that once you find a bank owned home that you want to make an offer on you may not be the only one. Many buyers will look at about a half a dozen homes and find one they like the best to make an offer on. Realize that if you like this one the best out of the group of homes you saw so will some of the other buyers out there. If you have already made an offer on a property you probably already know that in many cases these home draw a lot of interest and multiple offers on a property are very common. Once a bank receives multiple offers on a home, they will normally request Highest and Best. This means that you are given a set amount of time to come back to the bank with your best offer. So is everyone else. Most of the time the offers end up going over the asking price. The bank will then choose the best offer to work with. Is this always the highest offer? No. Sometimes it may be an all cash offer with a quick close that beats out the highest offer that happens to have to get financing. The REO bank knows that not all financing will go through. The banks may decide to go with whichever offer they want. Buyer's often ask what I think that they should offer. We look at the comparable priced closed homes to see what the homes similar are selling for, consider the amenities that the home they want has, and take into consideration how much the they want this particular home... then I will tell them this: "If you offer an amount for the home and you don't get the it, you want to walk away feeling that you offered the most you felt comfortable with on this particular home..., and if you do get it, you want to feel comfortable with the amount you offered on the home, -you do not want to feel like you paid too much for it either. This is a decision that only you can ultimately make." I can help with knowing the market and whether the value is there, but ultimately the buyer has to make up their mind how much they want this particular home. And prepare yourself that if you don't get the home there will be others.
Bank Response and Addendum: If you are the lucky one, the bank may choose your offer, or they may choose to counter your offer. Most of the time the countering back and forth at this point will be verbal or in an email. This is normal. Normal for the banks that is. A normal seller will have their agents counter in writing. Be prepared for a counter and be willing to play the game. Many buyers get frustrated and stick with their offer. Many times the difference isn't much, or can be worked out so it isn't much. Once there is an agreement on the terms of the contract, the bank will send over their Bank Addendum. The banks can change the contract with the addendum so they must be read through carefully.
As Is Addendum: Banks will also require that the home is sold as is. This tends to confuse people. This does not mean that you have to buy the home regardless of what you find in your inspection. And yes, you should still do an inspection so that you know what needs to be fixed. You could find out something that would effect your decision to even buy the home. If you do your inspection and find out something that makes you no longer want the home then you can elect to cancel the contract. If you find something wrong, you can still ask the bank to make a repair. The bank is not obligated to fix anything, but this doesn't mean the won't fix something. They might. If they choose not to make the repair you can either get out of the contract or continue to buy the home and make the repair yourself. Many times if it is a repair that will be required by your lender to be fixed or they won't loan on the home, the banks will make the repair. But not always. If you are prepared for this it won't be as big of a frustration if it falls apart because they won't repair something that your lender is requiring to be done. Occasionally a bank will allow a repair to be done by the buyer if the buyer is willing to sign a waiver and accept all risks. In some cases the risk is to high, but there have been some minor repairs that I have seen people willing to do. Keep in mind that if you do a repair and if you don't qualify for the loan the seller is not going to reimburse you for the repair.
SPDS & CLUE Reports: The REO bank is not going to give you the SPDS (Seller Property Disclosure Statement) or the CLUE Report (Comprehensive Loss Underwriting Exchange). They have not owned the property, they just foreclosed on it and don't know anything about the home to fill out the SPDS. And the CLUE report is insurance claims history and they have not had it insured to give you a report from their insurance company. A regular seller selling their home will be able to fill out the SPDS and obtain a insurance claims history from their insurance carrier.
Upfront expenses: You will also want to be prepared for any upfront expenses. Not only will you have your inspection fee (some people will do the inspection themselves and I can tell you from experience that the inspectors do a much more thorough job, so I advise that you hire a qualified inspector), but you may have to pay for your appraisal upfront. There is also the HOA certification fee that many Homeowner Associations are charging a fee for before they will send the information to title. Always try to get the bank to pay for these fees if you can get them to! Then at closing the HOA will have additional fees. You may also have to pay to turn of the utilities for your inspection if the bank doesn't have them on. It is a good idea to have a clause in your offer that the inspection time frame begins once the utilities have been confirmed that they are ALL on. I have had agents tell me that utilities are on, only to find out they are not. It is a good idea to check before the inspector goes out to the home as they will charge for going out twice! If you can get the lender to pay for some of these, great! But otherwise just be aware of the upcoming expenses.
Closing delays: Make sure that you allow plenty of time for your closing date and have your rate locked so that if there are delays in closing your rate lock won't expire and you won't lose your rate. Talk to your lender to make sure he doesn't need any extra time and make sure you are getting everything that he needs from you at the beginning of the loan process! Be prepared that they will ask for additional information and updated information and that this is normal. If you are delayed most REOs have late fees in their addendum. And keep in mind that there could be unforeseen delays that could interfere with your moving date, so be prepared for possible delays.
Buying a home is not difficult. And if some difficulties do arise, being prepared that they can happen will go a long way in keeping your sanity! Make sure you are working with a great Realtor and a great Lender and you will have all the help you will need!
Then before you know it you will be in your new home!
If you are buying, selling, or relocating to the Phoenix Metro Area, give us a call and we will help you find "your perfect home" here in the Valley of the Sun!
*Recognized in the Phoenix Business Journal as one of the Top 50 Realtors in the Valley!*
Ron & Brenda Cunningham
WEST USA REALTY
1640 S Stapley #124
Mesa, AZ 85204
*Recognized in the Phoenix Business Journal as One of The Top 50 Realtors in the Valley