This is a question that agents get asked A LOT by our buyers, especially first-time buyers.

There are several “challenges” you need to be aware of when buying bank owned real estate (aka REOs & Foreclosures):

1. The seller acquired the property via foreclosure and therefore has no prior knowledge as to the property history or its current conditon (the asset manager doesn’t ever even see the property). And because of this, the selling bank is exempt from providing the typical seller disclosures and the burden of proof (inspections!) lies solely with the buyer.
2. The seller RARELY will entertain any repairs, especially major repairs. This can really become an issue for FHA or VA buyers because those programs have strict underwriting guidelines that may prevent the buyer from being able to pay for certain repairs. Although, there are creative ways to work through those.
3. Short contingency periods. The “contingency period” is the approved amount of time inside of which you must complete all inspections and obtain full loan approval. After removing contingencies you are essentially saying you will complete the transaction or forfeit your security deposit.
4. PASSIVE (or automatic) removal of contingencies. Most bank addendums call for contincies to be removed automatically at the lapse of the stated/agreed to contingency periods WITHOUT written removal unless you’ve submitted a request for repair or backed out. After that time the bank can AND WILL retain your good faith deposit if you back out.
5. Most REO listings receive multiple offers. Best bet is to, be informed as to the comps and approximate current market value of the property, and go in at your highest and best right off the bat.

Have an aggressive agent. This is your assurance that all bases are being covered and you have a strong advocate out there negotiating on your behalf!   Having closed many REO transactions this is based on my experience in the San Diego Real Estate market but it is applicable across the country.

-Tara

This entry was posted on Wednesday, June 24th, 2009 at 12:09 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.