I've worked on plenty of Foreclosure transactions over the years, both as the listing agent and as the buyers agent, so I've gotten a great perspective on how both buyers and bank approach a foreclosure sale. There are a lot of mistakes commonly made that can prevent an offer from being accepted, so I've put together a list of tips for buyers in Southern Maryland who are considering putting in an offer on a foreclosed home
1. Make Sure You Include A Walk-Away Clause
Any foreclosure you buy is going to be sold As-Is. That means that the bank doesn't want to make any repairs (Although in certain situations they just might), so make sure you have a "walk-away" or "right to terminate" clause attached to the home inspection. This way, if the inspector finds a major problem that you can't handle, you have the ability to walk out of the contract and get your deposit back without penalty.
2. Don't Reduce Your Offering Price Based on Repairs
Yes, there are probably issues of some sort, it's uncommon to see a foreclosed home in perfect shape. That being said, don't base your offer on the amount you think repairs are going to run. The bank has probably been made aware of suggested repairs by their agent, long before you first saw the house, and they have adjusted the listing price to reflect that. This doesn't mean that you should necessarily offer full price, but putting in an offer based off of "list price - repairs" is not the right way to go about it. Instead, look at what fair market value of the home would be, subtract cost of repairs from that, and then consider your offer price.
3. Get A Mold Test
Yes, the house is beautiful, no, there's no visible mold, and yes you want to make an attractive offer to the bank. Trust me on this. Don't skip the mold test. The bank is exempt from a disclosure/disclaimer statement, and they've never seen the property personally. The property has also been vacant for an extended period of time, and may have also been without heat, electricity, water, etc. Certain types of mold can cause serious health problems, even cancer, and a great real estate deal is not worth risking your health over.
4. Don't Re-Write The Bank's Addendums
If you've read through a bank's required addendum that they attach to every property they sell, it probably left you a little hot under the collar and nervous about the legal jargon you waded through. Good news: You're not alone, lots of people have gotten upset about the way they are worded and the restrictions they impose. Bad news: You don't get the opportunity to rewrite their legalese. Bank Addendums are just one of those facts of life when it comes to buying a foreclosure. At some point, some lawyer in a big fancy office decided that the best way to protect his client (the bank) would be to create a document that would be attached to every single foreclosed home that the bank had to sell. That trickles down the chain of command to the asset manager in charge of selling the property, and the last thing an asset manager is going to do is risk his/her job and the company's liability because you don't like their paperwork. In fact, they would sooner choose another offer, for less money, than they would consider changing that document.
5. Be Prepared To Pre-Approve With The Bank That Owns The Property
It's kind of unfair in some people's eyes. Many banks, such as Bank of America, require you to pre-qualify with one of their lenders before they are willing to consider your offer. It's like playing poker with your cards face up, but if you don't do it, they won't play. Although the bank cannot force you to use their financing, they can institute policies restricting what they will offer financially as incentive to buyers. Some banks will only pay closing costs if you use their lender, for example. If you don't like the policy, find a foreclosure that does not require pre-approval through a preferred lender.
6. Don't Choose A Rookie Realtor To Assist You
You should always try to work with a real estate professional who has been in the business for awhile, and it's even more important when dealing with a foreclosure. If you can find an agent with a great reputation that has been in the business for a few years, they have probably dealt with foreclosures many times over and they understand the risks involved and how to keep their clients well protected. When settlement gets held up a week on a normal transaction, you need to extend the closing date. When settlement gets held up a week on a foreclosure, the buyer may be liable to the bank for thousands of dollars. And experienced agent can help you avoid that.
7. Make Sure Utilities Will Be On For Inspections
Don't assume the bank is going to be kind enough to ensure that all of the utilities are on for your home inspection. If you don't ask for it, you might not get it, so make sure that you do. It's not very easy to check for leaky pipes on a home that has been winterized!
8. Give Yourself Extra Time For The Closing Date
If your lender says they can close the loan in 30 days, add a week or two onto that time frame in the contract. This is all about expectations, and if you can close early, that's great! If you close late, the bank that owns the property may try to charge you for not adhering to the terms of the deal. Save yourself the headache by adding in extra time. It's not a big surprise to see a loan processor ask for additional information at the last minute, and those types of things can easily delay settlement.
9. Don't Submit An Incomplete Offer
As an agent that lists foreclosures, I can tell you exactly what happens to offers that are missing lender pre-approvals, earnest money deposit checks and required paperwork: NOTHING AT ALL. I cant's submit an incomplete offer to the bank, so if you submit an incomplete offer to the listing agent, it may never see the light of day. Make sure that all of the paperwork is present and accounted for BEFORE you submit it.
10. If It Looks Too Good To Be True, It Probably Is.
Banks are not in the business of giving away homes, regardless of what you heard on the radio. If you see a big home listed for half (or less) of what every other home in the neighborhood has sold for, I guarantee you there's a reason. I've listed homes that should be worth $600,000 for as little as $200,000, and every time it's been because the house was in wretched condition. Unfortunately, many people don't understand this, and when I list that sort of property, I know I'm going to get tons of calls from people who think they found a great deal, but the reality is that only an investor is going to have the cash to be able to rehab the property.
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