I thought Vicky Chrisner of Leesburg, Virginia, did a great job of explaining the various types of sales in today's market. Thanks, Vicky.
This post is intended to assist you with familiarizing yourself as a buyer with the types of sales we are seeing in the marketplace today. Read separate posts on Short Sales * REOs * Auctions for more detail.
If the prices are right, these are the best transactions! The contract is more "normal" in nature, allowing reasonable negotiations between the parties. Each party genuinely hopes for the sale to be completed and therefore works together to meet deadlines and ensure everything is resolved to the mutual satisfaction of all parties. These contracts are generally more predictable.
- Generally, private homeowners can not compete with the aggressive pricing strategies of a bank.
- Properties are often in better condition, requiring less fix up. Owners may also complete some repairs.
- Private owners generally do not consider a cash offer more valuable than common financing terms.
In these sales, the Seller must negotiate with their lender(s) for approval. They may be asking for full or partial debt forgiveness or a note payable for any deficit. Banks agreement to these sales are dependent on the ability of the family to repay the debt, and the circumstances that have changed since the loan was originally approved. This process can take several months, and sometimes does not result in a closing.
- How many lenders are involved?
- What is the hardship/ability of the owners to repay?
- Will they be asking for debt forgiveness or a note payable?
- Who is negotiating with the bank and what is their experience level?
- Which bank is it; what is their process and has it been started?
- Longer contract periods with floating deadlines, all based on the approval timeline of the bank.
- Banks generally will not agree to a below market sale - this is determined based on an independent appraisal they conduct.
- While owners may consider doing some repairs, generally contracts are "AS IS".
- Inspections are usually OK, but buyer can not ask for any repairs; their only choice is to terminate the contract.
- Cash offers are considered favorably, but not to the extent they are with bank owned properties.
Bank Owned (Post Foreclosure) Properties:
These tend to be some of the best deals available in today's market.
- Banks are pricing aggressively, and when they do, often there are multiple competing offers for properties. You may consider submitting an escalation addendum in these cases, although some banks will not consider escalation addendums during negotiations and simply come back and ask for "best and final", or accept an alternative offer.
- Cash is king! Banks realize the struggles and risks involved in some buyers obtaining financing. In addition, they are aware of property condition guidelines from FHA or other types of loans, which might REQUIRE repairs prior to closing... and they want to avoid this.
- By targeting homes which might not qualify for government financing, and making cash offers, you may be able to buy at a more reduced rate.
- Often properties are in "fixer upper" condition, and properties are sold strictly AS IS.
- Inspections are usually OK, but buyer's only recourse is contract termination.
- Banks require that you agree to the terms in their addenda, with NO CHANGES.
- Some banks require certified funds as deposit and/or specify who will hold the deposit.
Banks are like the military - it's "hurry up and wait". The timeline looks something like this:
3-10 days later, Offer "Acceptance" (verbal or email)
1-2 days later, Counter Offer sent w/bank addendum
Within 1 day - resubmit offer w/ acceptance of bank terms
3-10 days later, Ratified Contract
Closing is as specified in the counter offer, which is generally a fixed date. Challenges here become getting utilities turned on to complete the home inspection; completing title searches; & obtaining HOA docs within the time frame permitted by the contract.
Banks will close AFTER you, and you will not get possession until they've signed off on everything. This can cause delays, I have seen more than 1 take over 2 weeks. I suggest attempting to negotiate a penalty to the banks should this occur.
Public Auctions/Courthouse Steps: These are the foreclosure auctions. The vast majority of these are purchased by the bank who owns the mortgage/lien, which is generally more than the current market value. There are some opportunities here, but they are more limited than many expect. There are also more challenges in these transactions.
Private Auctions/Ballrooms or at property: These are often done by banks (or other parties) and most commonly are done with a RESERVE. Again, there are sporadic opportunities here. Terms are very similar to those by any Bank Owned Homes