UPDATE: Thanks for coming to my blog. Regardless of how you got here, this series was written in 2008. The market is ever evolving and hopefully you will find this information outdated. A better source of CURRENT information about buying an REO can be found by clicking HERE: REOs in 2010.
* * * * ORIGINAL POST BELOW * * * * *
In Part 1 of this series, we talked about PRICE -the thing most people are interested in. In Part 2, we talked about FINANCING - the thing people become most interested in when they are in the negotiating process, or after they've had an offer or two turned down. So, here in Part 3, we're going to talk about what can be a huge stress and series of pitfalls - timelines and deadlines. Here is how an offer goes... you write, you submit, you wait and wait some more. After a few days - 2-10 business days - you get a response... they call it a "counter offer". If you are not up against multiple contracts their agent may tell you they need some changes in price or terms to accept it. If they are in a multiple offer situation, you will not get this opportunity. If they suggest those changes, and you accept, this is when you will typically get the "bank addendum". These are terribly, scary documents, and they override your contract. So, read carefully. Some will say you can not do a home inspection. I strongly suggest you do not waive this right. DO a home inspection, but understand the bank does not plan on making repairs. So, if you find that the AC doesn't work, you will have to decide if you will buy the house anyway, for the same price, or if you will move on to your next house. These are your only options. Some will say you have a definitive time for financing contingency and appraisal contingency, and if you do not meet those deadlines there will be no extension. If, after that date, you have a financing/appraisal issue, beware - you will likely be considered in default. The most common remedy the bank will use is to refuse to refund your deposit. Theoretically, however, there may be other remedies for default. Each bank is different - as Forest Gump would say they are like "a box of chocolates, you never know what you're gonna get". Do not sign these blindly. Remember it is better to walk away from a good deal and talk about the "one that got away" than to get into a bad deal. Every addendum I have seen removes the typical "X days from ratification" contingency periods in most standard REALTOR forms, and replaces them with exact dates. But, be careful. Let's say you are signing the paperwork on June 15, with a goal to settle July 15. Your contract, according to the bank addendum, gives you until June 30th to complete your home inspection, get financing lined up and have the appraisal back. But, here is what is not obvious to someone new to this process - you may not have a signed contract back until June 28th. You COULD end up with 2 days to complete all of these requirements. So, I recommend a different addendum that you create that says, for example, "Financing and Appraisal contingencies will expire the later of June 30th, or 15 days from the date of ratification of contract. Closing shall be the later of June 15th, or 30 days from the date of ratification." I have created an addendum like this, and if you email me, I will share it with you. This builds in protections for delays caused by the banks, and protects you from dealing wtih the per diem penalties that most bank contracts call for if there are delays in closing, which can quickly get steep. Be ware - every listing agent I've presented this to tells me the "bank will not accept this"... and then I ask them to present it, and every bank has accepted it. The listing agents don't think the banks will, but they don't know, because no one's every tried it before. Once you've signed the bank addendum, and anything else that will be submitted along with it, expect it to take double the amount of time that the original response took. If the bank took 4 days to acknowledge your offer, it will likely be 8 business days before you get a final ratified contract. If the original acknowledgement took 10 business days, it could be 15-20 business days to get to ratification. At that time, the race begins. If you were smart, and anticipated this process, you'll have plenty of time... of course, you may be moving in August, and not July. But, these are the risks with purchasing REOs. All of this goes back to the posts where I warned you to not just focus on REO purchase, and if you are going to buy one, to make sure you are getting a good deal - one that makes it worth a little risk, that makes it worth the frustration, and that makes it worth not being able to move in when you expected. As you can see, someone must have EXPERIENCE with buying REOs in today's climate. Few buyers will be able to anticipate and navigate this process themselves. And, quite honestly, few REO agents wish to deal directly with a buyer, or to deal with an inexperienced agent. If you, or your agent, do not know what you are doing, your offer may not be presented for acceptance, or if it is, the listing agent will say to the asset manager "this one will be trouble", and your otherwise great offer will not be accepted. The lesson here - hire an agent with experience in this arena; and do hire an agent. Your cousin who just got her license should not be attempting to guide you through the murky waters of today's real estate climate.... and even if you DO know what you are doing, believe me, there is no financial incentive to you, the buyer, to deal with this yourself.
* * * * ORIGINAL POST BELOW * * * * *
In Part 1 of this series, we talked about PRICE -the thing most people are interested in. In Part 2, we talked about FINANCING - the thing people become most interested in when they are in the negotiating process, or after they've had an offer or two turned down. So, here in Part 3, we're going to talk about what can be a huge stress and series of pitfalls - timelines and deadlines. Here is how an offer goes... you write, you submit, you wait and wait some more. After a few days - 2-10 business days - you get a response... they call it a "counter offer". If you are not up against multiple contracts their agent may tell you they need some changes in price or terms to accept it. If they are in a multiple offer situation, you will not get this opportunity. If they suggest those changes, and you accept, this is when you will typically get the "bank addendum". These are terribly, scary documents, and they override your contract. So, read carefully. Some will say you can not do a home inspection. I strongly suggest you do not waive this right. DO a home inspection, but understand the bank does not plan on making repairs. So, if you find that the AC doesn't work, you will have to decide if you will buy the house anyway, for the same price, or if you will move on to your next house. These are your only options. Some will say you have a definitive time for financing contingency and appraisal contingency, and if you do not meet those deadlines there will be no extension. If, after that date, you have a financing/appraisal issue, beware - you will likely be considered in default. The most common remedy the bank will use is to refuse to refund your deposit. Theoretically, however, there may be other remedies for default. Each bank is different - as Forest Gump would say they are like "a box of chocolates, you never know what you're gonna get". Do not sign these blindly. Remember it is better to walk away from a good deal and talk about the "one that got away" than to get into a bad deal. Every addendum I have seen removes the typical "X days from ratification" contingency periods in most standard REALTOR forms, and replaces them with exact dates. But, be careful. Let's say you are signing the paperwork on June 15, with a goal to settle July 15. Your contract, according to the bank addendum, gives you until June 30th to complete your home inspection, get financing lined up and have the appraisal back. But, here is what is not obvious to someone new to this process - you may not have a signed contract back until June 28th. You COULD end up with 2 days to complete all of these requirements. So, I recommend a different addendum that you create that says, for example, "Financing and Appraisal contingencies will expire the later of June 30th, or 15 days from the date of ratification of contract. Closing shall be the later of June 15th, or 30 days from the date of ratification." I have created an addendum like this, and if you email me, I will share it with you. This builds in protections for delays caused by the banks, and protects you from dealing wtih the per diem penalties that most bank contracts call for if there are delays in closing, which can quickly get steep. Be ware - every listing agent I've presented this to tells me the "bank will not accept this"... and then I ask them to present it, and every bank has accepted it. The listing agents don't think the banks will, but they don't know, because no one's every tried it before. Once you've signed the bank addendum, and anything else that will be submitted along with it, expect it to take double the amount of time that the original response took. If the bank took 4 days to acknowledge your offer, it will likely be 8 business days before you get a final ratified contract. If the original acknowledgement took 10 business days, it could be 15-20 business days to get to ratification. At that time, the race begins. If you were smart, and anticipated this process, you'll have plenty of time... of course, you may be moving in August, and not July. But, these are the risks with purchasing REOs. All of this goes back to the posts where I warned you to not just focus on REO purchase, and if you are going to buy one, to make sure you are getting a good deal - one that makes it worth a little risk, that makes it worth the frustration, and that makes it worth not being able to move in when you expected. As you can see, someone must have EXPERIENCE with buying REOs in today's climate. Few buyers will be able to anticipate and navigate this process themselves. And, quite honestly, few REO agents wish to deal directly with a buyer, or to deal with an inexperienced agent. If you, or your agent, do not know what you are doing, your offer may not be presented for acceptance, or if it is, the listing agent will say to the asset manager "this one will be trouble", and your otherwise great offer will not be accepted. The lesson here - hire an agent with experience in this arena; and do hire an agent. Your cousin who just got her license should not be attempting to guide you through the murky waters of today's real estate climate.... and even if you DO know what you are doing, believe me, there is no financial incentive to you, the buyer, to deal with this yourself.
You will prove yourself to be much wiser to hire a buyers agent to represent you and advise you. Even the listing agents agree.
