You've heard that your cousin's husband's brother's son just bought a $200,000 two story for $120,000 and you want to get in on the action, right? ME TOO. I get calls all the time from buyers who say "I'll buy anything that's priced at 75% of market value and I usually respond with; "Get in line behind me".
Unfortunately, the bank owned property resale business in Northern Kentucky is booming. But there are some great bargains available for some people. Here's a list of dos and don't for buying a bank owned property.
1. Cash speaks very loud but not as loud as you might think or have been lead to believe. The net amount the seller will receive is usually the most important factor. I've seen asset managers accept offers that included financing and inspections that net them just a few hundred dollars more than cash offers with no contingencies. Don't make much sense to me, but then, I'm not the seller.
2. Get pre-approved. NOT just prequalified, The bank will not consider your offer unless the offer is submitted with a pre-qual letter. Just recently we've had the banks requiring proof of funds for down payments as well as pre-qual letters. With cash offers, be prepared to supply proof of funds when you submit the offer.
3. Know your loan that your pre-approved for. Ask your loan officer if a fixer-upper would qualify for the type of loan that you can qualify for. Many bank owned properties need some work, some need a lot of work. It's usually the later that may seem like a great bargain but many loans will not approve homes that are fixer-uppers. FHA requires the utilities to be on when the appraiser visits the property. Some banks owneds won't turn the utilities on, or allow you to turn them on.
4. Inspect, Inspect, Inspect. Not just the mechanical items but also the surroundings. We've had at least 6 properties within the last year that the seller simply walked away from because there was a (insert problem here) issue that could not be easily resolved, if at all. Easement. Encroachment. Sewer line. Etc. "issues" can be broad, don't assume anything.
5. All agents are not created equal. I know... your sister has a real estate license and if you don't use her you might be shunned by the family. If your going to get involved with purchasing a previously foreclosed property then you better be using an agent with lots of experience with bank owned properties. (same holds true for short-sales. Not all agents who handle bank owned properties know about short sales and visa-versa.) Don't use the listing agent, it will not get you a better deal. You definitely want to be represented by your own buyer's agent who has bank owned experience.
6. Be prepared to sign the bank's purchase addendum. Yes, the banks will make sure they are protected. Most of the bank's addendum's I've seen lately are anywhere from 8 to 25 pages. They all say "as is" in multiple locations but they also have lots of other clauses that you won't normally see in a traditional real estate transaction. If contracts are scary to you, have an attorney who will work with you, review the contracts, and get back to you very quickly. But, don't expect to make too many, if any, changes to the banks addendum's. Either accept that "no resale within 6 months for more than a 20% profit" clause, or don't buy the house.
7. Calenders and clocks run of different schedules for banks. Don't think that because you gave them a 36 hour deadline to respond that you are entitled to a response. But, on the other hand, they will expect your prompt response. They can not and will not be intimidated by deadlines and threats of losing a deal if they don't respond. I have witnessed buyers who have walked over a five hundred dollar counter offer and banks who say, "whatever, we'll just sell it to someone else" and then actually sell it to someone else for $8,000 less, next week.
8. Don't think that you will get or are entitled to a counter offer or signed rejection. In a perfect transaction counters and signed rejections make everyone's life easier. Regardless of what you've heard of the seller is not required to respond at all.
9. Regardless of the excuse the bank will expect you to close on the date on the original contract. Appraiser could not get in? There was a tornado? Underwriters are back logged by 2 weeks? Doesn't matter. If you can't / don't close on the scheduled date, expect to pay a hefty penalty (sometimes a couple hundred dollars) per day until it is closed.
10. Even if your able to find an agent who's willing, don't go out and write low ball offers on every bank owned property hoping that someone will bite. Asset managers despise time wasters. I've had decent offers that were not even considered by the bank because the asset manager recognized the buyers name from previous multiple low ball offers on other properties. If you want the best deal, then determine what your best offer would be and make that offer first.
11. Despite what you might read in the media about houses being on the market for months and months just doesn't hold true for bank owned properties. They price this properties with the intent of having them sold within 30 days. When they price them right there are many times multiple offers at the same time. I've seen properties recently that sold for 30% over asking price, and buyers upset that they weren't the winner bidder with a 120% of asking price offer. MAKE YOUR BEST OFFER FIRST, Determine what the property is worth to YOU and don't start second guessing what you might have been able to buy it for.
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