So you want to make an offer on a property that is bank owned? Great. Many things are the same as buying a traditional resale home. And, there are a few differences. Here are a few highlights!
IMPORTANCE OF A BUYERS AGENT: A buyers agent is critical when you're buying an REO. Here's the thing that people just don't understand: A listing agent represents the seller. A buyers agent represents YOU. They tell you about options, help you access and interpret information, and guide you through the process. A listing agent can be very nice to you as a buyers, even helpful. It is very possible that the transaction will work out well for you and you will never know that you didn't get a very good deal or that you were taking high risks during the process. Ignorance can truly be bliss. But, you need to trust me on this, a good agent will bring huge value to your transaction for you in reduced risks and more money in your pocket. And, there's no up side to NOT using a buyers agent. In most cases, listing agents prefer you have your own agent, as do the sellers and it will not save you any money, time or frustration by 'cutting out the middle man'. If banks didn't want a 'middle man' they wouldn't hire one, and actively seek out a second (buyers agent).
PRICE: Banks are going to price similarly to traditional sellers, except without any emotion. So they will be pricing where they honestly believe the property will sell. This is not a game for them. Within a few weeks to a month (depending on the market activity level), if they've had no other offers, they will be willing to consider a price lower than their asking price. The longer the property is on the market without receiving offers and without adjusting the price, the more likely that they will consider a lower price.
FINANCING: No, you do not need to make a cash offer. However, banks do prefer cash offers and will sometimes even sell at a bit of a discount if there is no financing contingency. How much discount? Well that depends on how difficult they believe that property is to finance. In 2008 loans were hard to get. Now, money is flowing again, and creditworthy individuals with a downpayment are getting fiancing without too much difficulty. Selling banks continue to dislike FHA or VA loans, but in some submarkets there is no way to avoid them. Some selling banks will even give "preference" to buyers using FHA or VA loans (believe me when I say there is a hidden agenda for this, it is not from the goodness of their heart), but it may benefit you and if you luck into that situation, enjoy!
DEADLINES AND TIMELINES: In 2008, when I wrote about this, I talked to you about ridiculous behavior from banks-I wanted you to know what to expect. But since then things have gotten better. Banks respond much quicker, they are more reasonable, and the personnel involved have a reasonable work load and good systems. In other words, they are no longer crazed lunatics, nor are their agents...generally speaking. Every once in a while I bump into another crazy one (refer to the video in the first post of this series). So, in this case, it doesn't hurt to understand what "used to the norm" in the marketplace. To set some expectations for today's market, here are some quick tidbits:
-Especially if the home is a "fixer upper", but in any case where a property is priced really competitively, banks prefer to sell to people buying with cash. You might think "yeah, right", but a lot of investors are buying with cash. If the home you're looking for is a great deal, and a fixxer upper, then cash is certainly king and in many cases, the banks continue to sell at a discount to those buying with cash. Not buying with cash? Banks will look more favorably on offers with larger down payments, and those not asking for seller paid closing costs.
-Expect the selling bank to require you sign their addendum which has language to protect them and sells the house "as is". Read it and understand it. Make sure you agree to the terms before you sign it. The terms may or may not be negotiable. A buyer's agent that understands the marketplace can advise you.
-Despite buying a property "as is" you can usually do a home inspection. Depending on the sub market and your contract, you may be able to ask for some limited home repairs based on the inspection - usually this will only be approved if it is likely to be a condition of your financing/appraisal, or something significant you would not have been able to anticipate when you wrote the offer originally.
-Banks do still take a bit longer to respond on some offers. Consider padding the timelines in your offer, or make the timelines contingent on you receiving information from them (i.e. home inspection will be 10 days from ratification, financing contingency for 25 days from ratification, and closing 35 days from ratification) rather than building in specific dates. This way, you steer clear of only getting 2 days to do your inspection.
-At least in Virginia, you do not have to use the seller's suggested title company. You can, and might consider it if they are offering you a financial incentive to do so, but I do have a slight preference for using the title company your agent recommends. That is only because your agent knows what to expect from them and there's an open line of communication so that if there are any "issues" your agent will know in advance and have an opportunity to solve the problem before it's a problem. And, if they need a favor for you, your agent is more likely to get that favor from a company they regularly do business with.
A RATIFIED CONTRACT?
Really? You've ratified your contract? It's so exciting! You're well on your way to being a homeowner. Once your contract is ratified, this becomes an almost "regular" transaction. Just make sure you understand your contract, that the utilities are on before you go to do the home inspection, check and double check that you're on top of things and you can close on time, since many of these contracts have built in "per diem" penalty fees if you don't close on time.
Congratulations..... and good luck in your new home!
