Buying Bank Owned Homes
Frank J. Wasung
1/11/2009
"Only send me bank foreclosures"! This statement is made to me so often from home buyers who are looking for the best deal. Many feel that the only way to accomplish this is to purchase a bank owned home. This may or may not always be the case, depending on the purchasers willingness to accept "as is condition", their ability to refurbish/refinish a home, and their ability/willingness to jump all over the best deal. Let's talk about some common issues involved with buying a bank owned home.
Bank owned means that this home has been foreclosed on, gone through the process of the bank obtaining possession of the house, and the loan redemption period for the previous owner should be expired. It hits the market from a listing real estate brokerage and is made available for public offers from both investors and private people looking to live in it as their homestead. Now is where it gets tricky. Unfortunately, the media hypes the market situation and convinces folks that there are no houses selling (not true). After hearing this and doing some research, the buyer feels they are fully informed on the market and ready to jump in.
Buyers start looking on the internet and find really inexpensive listings for an area. The picture looks great and it's such a good deal. In reality, most often the house is in need of repairs. It may have multiple major issues, or maybe just needs lots of "TLC". Either way, the seller has usually been well informed, and has priced the home accordingly.
If the house is priced correctly, it will attract many prospective buyers. Those that are looking to get a deal get very excited and want to schedule a viewing. Many of these parties are fairly inexperienced in dealing with these type homes, and when they get to the home, look inside, see the actual condition, and they are disappointed. I have had clients create huge list of problems the home has and they tell me they would buy the house, but only after all these problems are deducted from the price. Others just leave and write it out of their search, saying it needs so much work. What they are not understanding is that the home is usually priced well under value for the neighborhood, and the sellers have had several price opinions made to them, including an "as is" price, and they are not about to take an offer ridiculously low.
Several instances recently, my client did not believe the home would sell fast in this market, and they decided to wait it out until the bank reconsidered their offer. They would go into great detail with me on how much work the house needs, which is counterproductive because I am on their side. Guess what happens. . . . It sells to the next buyer and fast.
Lately, banks are grading the brokers that have given them a price opinion as to how close it sells for compared to what was recommended. The banks want the houses sold, and are not interested in "playing the market". If a broker recommends an incorrect price and the house sits, that broker may accumulate marks against them, and could eventually lose the banks business.
The bottom line. . . . .
The bank does not care about you, your agent, what you think the house is worth, what is wrong with it, what your needs and time lines are, or anything else you can think of. They only care about one thing, and that is how fast and for how much they can sell the house for. These days, they are in the habit of pricing homes very low in an attempt to create multiple offers. Often, this is exactly what happens and the savviest buyer, with the best looking offer wins. An ideal offer to the bank has several elements:
•1. The offer price is with-in 10% of the list price
•2. It is a cash offer, or at least a conventional loan with a sizable down payment
•3. The buyer can close almost immediately
•4. The buyer has waived their right to an inspection
•5. The buyer has signed all the additional addendums that the bank has issued, agreed to all of the banks terms, and submitted a complete, professional, legible, offer package including an earnest money deposit check.
When there are multiple offers, this is likely how it will go. When you are the only offer, they are much more likely to bend, but only so much. If they cannot sell the house for a price with-in 10% of the list, they will reject or counter your offer and lower the list price. Remember that the entire time you are negotiating with them; the house is still on the market. The moment they get a better offer, they will dump you like a rotten bag of onions. Even if a verbal agreement has been reached based on your original offer, you had better get a signed sealed and delivered document package before you count it as a deal. Many banks even have you sign disclaimers stating that they can back out of the deal at any time for any reason. Not you of course, just them.
What it all means. . . . .
Forget what seems logical to you and to me. Many times the bank will eventually sell a house for much less than what previous offers were for. There is a home on our local market right now, which my client offered 120K on, they rejected our offer. I just noticed it on the market now for 102K. My same client and I found another home listed at 140K. We offered 125K, they countered to 135K, we countered back at 130K, and while we were waiting for the answer, the house popped back up on the MLS for 110K. We resubmitted our offer package at full price and got the house for 20K less then what we were willing to pay. Why? The banks have systems of time and price reductions and are not very good at communicating with the listing brokers. In this case, they hit a price reduction time frame, did not consider that they were in negotiation with a buyer, and lowered the price. Whoops, they just cost themselves 20K and don't even know it. The listing broker should be making sure this type of thing does not happen, as they are supposed to be representing their seller, but often they are not very alert, concerned, or dedicated to and for their seller.
Soooo. . . .
This post only touches on the volatility of buying bank owned homes but I'm sure you can see that they have some interesting, sometimes frustrating elements to them. To have the best chances of getting a good deal on one, here are some pointers.
•1. Be fully approved for your mortgage and have bank statements proving the existence of the down payment amount or purchase price in the case of cash purchase. Without this, the bank will not even consider your offer. With this, they will take notice and are most likely to agree to a lower price. A good buyer's agent will assist you on this.
•2. Obtain and hire a Buyers Agent to work on your behalf. This is free to you, as the seller pays all the commissions, and you benefit from having a savvy professional on your side of the table. Find one that works full time, has proven experience, and you feel comfortable with. It is a team effort and the right agent will educate you on all aspects of the purchase. Many bank listing brokers will be slow to react to your inquiries, may not respond at all, and when they do, will dump you off on their own buyers agent of whom they will charge a percentage to, thus making money on both ends without having to do much. And remember, many do not care about you or who gets the house.
•3. Be ready! The best deals come up on the market, and sell immediately. If you are just casually looking, and are not ready, don't believe that you will stumble across a good deal and will get it together then. It will be too late. My clients expect to receive calls from me saying "Did you see the new listing, lets meet there in ASAP!"
•4. Do not plan on writing any contingencies such as "closing on the sale of our home" or "subject to our home selling first". They will not even look at your offer.
•5. Try not to get too excited about any one house or deal. Deals do go bad for one reason or another. If it is meant to be, it will be. Everything happens for a reason.
•6. Be willing to consider all types of homes including, bank owned, HUD owned, short sales, privately owned, corporate owned. All sellers are competing for business and now more than ever, all types are considered in setting present market value.
Look for me to elaborate on the last couple items here in future posts. For questions on any of this, please feel free to contact me.
Good luck out there!
Frank J. Wasung
Comments(3)