Yesterday, I attended a bank owned workshop presented by a top REO agent from San Diego with some REO colleagues of mine. As a REALTOR® who represents buyers on bank owned properties there have been many times where I have been more than frustrated with the banks. This workshop help shed some light on the process for submitting purchase and sale agreements and what to expect through the process but I doubt it will elevate buyer frustrations.
Things to Know When Buying Bank Owned Homes
– Pre-Approval Process
– As-Is Clause
– Highest & Best Offer
– Communication & Response Times
Pre-Approval Process
It is common when purchasing a property to have proof of funds and/or a pre-approval letter provided with a purchase and sale. This has not changed. However, who the pre-approval letter has been issued by has. In the previous post, Wells Fargo and Bank of America have dramatically increased the number of originated loans and I correlate that increase to buyers having to be pre-approved through them just to submit an offer on one of their properties. Having buyers submit for a pre-approval letter has caused a lot of frustration for buyers due to the additional step required and concerns over how it affects their credit score. So far, I have not seen the additional pre-approval affect credit scores or ability to obtain financing.
As-Is Clause
The most common verbiage used in a banked owed property’s addendum and advertising remarks is “as-is”. “As-is” means just that and the banks do not and will not take any responsibility for the condition the property is in, unless the property defects are called in the lender’s appraisal. In a normal transaction, a buyer will conduct a home inspection (Form 35) and then after ask for seller concessions in the inspection response (Form 35R). In the case of a bank owned property, the seller will not fix or give concessions to the buyer. Be very aware of this point as renegotiating the original contract could hinder or prevent a successful purchase.
Recommendation: Conduct a pre-offer inspection and become aware of any defects. This way, the requested work orders can be written into the purchase and sale agreement and avoid any renegotiations.
Highest and Best Offer
It has become standard practice by listing agents of bank owned properties not tell the parties involved what other competing offers are; they just say “present your highest and best offer”. To me this is a poor practice and does nothing to facilitate the sale of the property.
The result is ambiguity. As a buyer’s agent, I like the most information as possible so I can provide the best consulting services for my clients. With having no information, other than “present your highest and best”, there is nothing to ride with. If the numbers where known to the buyer’s agents then it would allow for the buyers to either stay in the transaction by raising their offer or bowing out and not wasting time on the transaction.
Communication and Response Times
Communication and response times are another area in which buyer’s agents have to be aware of. In a typical transaction communication happens between buyer’s and seller’s agent and their respective clients and response times are short – making for a speedy and informed transaction. With bank owned properties there are still the agents involved but one represented party is an entity (even though there is a person managing the file). This poses unique communication challenges and delayed response times.
The asset manager for the bank is usually working on 300 – 500 files at one given time and closing 10 -15 files per month. Not a large volume considering how many files the asset managers are working on. This leads me to believe that asset managers, as well as REO listing agents, want to try to have the smoothest transaction possible and why REO listing agents can be so hard on buyer’s agents. In addition, the amount of files on asset manager’s desk, at any given time, increases the amount of time between responses, if a response comes at all. Just be prepared.
Managing Buyer Expectations
From the agent’s standpoint this could be one of the most important aspects on a bank owned property purchase. As we have seen, the purchase of a bank owned property has some interesting quarks from normal transaction and knowing them up front will help the buyer’s understand what to expect moving forward. It is important for buyers to understand the process, even though it’s similar, and to expect that they may not be in the driver’s seat.
Related Blog Posts
- Short Sales and the Foreclosure Process
- Buying a Short Sale, Bank Owned, Fannie Mae, or HUD Home
A house came on the market today. It is a brand new foreclosure. Should I pay full price and closing cost?
Hi Blair, when a property becomes available, and in this case, has very little market time, more than likely offers that will be considered are full price or very close to full price. With that said, as a property accumulates market time (CDOM – continuous days on market) there is a higher probability the bank will take a less than full price offer – goes for resales as well.
Another factor in accepting a full or less than full price offer is: is the property priced above, equal too, or below market value? I’ve seen with properties that are listed below market value will have competing offers with very little to no buyer concessions.
That truth is it all depends on a properties particular situation.
We are in the process of buying a property that is a “deed in lieu” of—–we do not know what to expect. We are putting down 25% BUT AT THIS POINT HAVE BEEN GIVEN 3 DIFFERENT CLOSING DATES BUT THE TITLE COMPANY ARE HOLDING THINGS UP. pLEASE ADVISE as this is in Cincinnati OHio and is thru Fannie Mae. If you can give us any imput on time expendancy it would be appreciated it…..Thanks,, Cindy
As long as your title company can verify you’re “receiving clear title”, with no liens, then everything should be fine. In this case, the title company is holding up the transaction due to something. I would expect those are title issues or some other type of lien-able item. I’ve see Fannie Mae and HUD take homes off the market due to lien issues that couldn’t be resolved. It sounds like a sticky situation and it maybe wise to consult a real estate attorney in this matter.