These days every buyer is looking for a deal, and rightly so. The real estate market has been hammered in most areas, the North Oregon Coast is no exception. As a real estate agent, I rarely run across a Buyer that is not already trained to seek out foreclosures when looking for a good deal- and sometimes buying a bank owned home isn’t the great dealer the buyer thinks it is, but that’s a topic for another day. For the most part foreclosures (or REO’s) are sold below “true market value” because the bank doesn’t want to hold the property any longer than they have to. Sometimes the properties are priced very well from the start of the listing, other times the bank misses the market and makes price adjustments over time until the value falls in line with the market.
The asset manager charged with disposing of a property for a bank is dealing with dozens if not hundreds of properties at a time across several states. They have a standard way of conducting a transaction, irregardless of local customs (so far as the transaction is concerned). Nearly all banks will include an addendum that is between 3-10 pages of specific terms of the agreement that must be signed by the buyer and become part of the agreement prior to reaching mutual agreement (when the offer is deemed accepted). These terms are very specific dealing with items like inspections, financing, closing, escrow, ect. and usually supersede the standard state contract your offer is drafted on. Asset managers will rarely deviate from these terms, and in the event you or your agent overlook something it could cost you your earnest money deposit and the property. Here’s three important areas that can cause you grief and how to avoid it:
Have your financing in order
You would think this is common sense, and it is. However being pre-approved by your lender does not automatically mean smooth sailing. Most banks will not allow more than 45 days to complete the transaction, and many will be looking for a 30 close. It’s not impossible to accomplish inspections, the appraisal, underwriting and to satisfy the multitude of last minute document requests prior to signing loan docs in 30 or 45 days but your lender needs to be on the ball. Something as simple as a delay in ordering the appraisal can delay the transaction beyond the original closing date and the lender will almost always require you to pay a penalty or per diem in order to continue- common daily per diem charges of $100-150 per day are common. Be clear with your lender about the closing date and that you expect it will be met. Also, if you are financing a property with anything order than a true conventional loan be careful when purchasing a property that needs repairs. Even if you are satisfied with the home inspection report, your lender may be unwilling to lend on the property. FHA and VA loans are most common cause of trouble here, and being 30 days into a transaction after you’ve spent money on inspections and the appraisal is not the time to find out your lender will not fund. If the property does need more than a coat of paint and new shag carpet, ask your lender about potential trouble items prior to drafting an offer.
Perform due diligence
Once you have successfully negotiated an offer with the bank on a foreclosure you will have a tough time renegotiating the deal after inspections. Having a home inspection on any property, new or old is always a good idea. If the property does need work, have a licensed contractor evaluate prior to making an offer to give you a clear picture of the property condition and cost of repairs. Sometimes surprises do come up in inspections, but you’ll have to make the decision to accept the property as-is or walk away and keep looking. This also applies to items like surveys and zoning too. You should have all your questions answered prior to making an offer.
The meter is running…
Even in a cash transaction the final agreement for the sale of the property will include very specific timelines for each contingency. Often times inspection contingencies are referenced in calendar days in the Seller’s addendum, not business days like the standard form state contract for example. It’s very important to keep your eye on all timelines. If your lender determines you do not qualify for financing after the mortgage contingency has lapsed your earnest money is at risk. Make sure all funds required to close including the down payment are readily available when you need them. Often times closing is a last minute scramble to beat the clock, and a delay of a day or two may cost you the property.
There’s an emotional cost for the savings
Even with all the potential pitfalls you face when buying a foreclosure property, most buyers find the added hassle and risk is worth the reward. If you ensure all of these areas are covered, your foreclosure property purchase can and will go smoothly.