I love selling bank-owned homes. It can be very gratifying to show a distressed home to a home Buyer with vision and then see that vision come together after the sale closes. All you need is a patience, cash and a little vision when it comes to buying a foreclosed property.
When buying a bank-owned (a.k.a Foreclosed) home, keep in mind the following points.
Property Sold “As-Is”
Buyers are expected to assume the risk of most property condition defects that may not be discovered until after closing. While the banks are currently accepting offers subject to inspection, they are unlikely to make repairs of any defects found during the inspection.
When buying any type of distressed property, the Buyer’s financing can be a deal killer. Lenders make the decision to loan money based not only on the Buyer’s affordability and credit worthiness but also on the condition of the home. If a home has a bad roof, rotting decks, missing appliances or floor coverings, or any other defects (sometimes even minor defects), the lender may not fund the transaction. That being said, there is a loan program that provides for repairs and a skilled REALTOR® or mortgage lender can help you navigate this. Beyond home repairs, condominiums with financially troubled reserves may also be beyond the Buyer’s lenders appetite for risk. Typically FHA, USDA Rural Housing, or VA loans will be the most restrictive when it comes to the condition of the property and for good reason, buyers with limited down payment funds should be very careful buying a home that needs a lot of work.
Limited Seller Disclosures
Most states require the seller to disclose (but not investigate) any known material facts to a buyer. The policy of most banks is to purposely know as little about the property as possible and in Washington state the banks will require the Buyer to waive the right to receive a full disclosure statement.
Length of Time to Negotiate the Offer
Banks are not typical sellers. They may be in different time zones and are usually unavailable evenings and weekends. The asset manager in charge of the sale may be overwhelmed or out of the office due to illness or vacation. They might be overwhelmed with offers, especially low offers. It can seem as if there is little sense of urgency to respond.
The bank will insist on using attorney-prepared addendum to the Purchase Agreement that will contain terms favorable to the bank. While a buyer will always be advised to speak to an Attorney to properly interpret the contract and its implications the bank is unlikely to accept any revisions. Some of these unfavorable terms can include waiving the financing contingency, non-refundable earnest monies, and per diem charges for late closings if the buyer is late but an almost indefinite automatic extension allowed by the bank.
Increased Inspection Costs
Since the buyer cannot rely on any recommendations by the bank, the inspections become much more critical. It is also possible that the previous occupant was vindictive and might have caused damage to the property that is costly to repair, while these situations on a whole are rare the need for additional inspections cannot be understated.
Inheriting Past Code Violations
Some properties have code violations and those violations don’t automatically go away when the property is transferred. Just a few examples include properties with illegal septic systems or commercial properties in a residential zoning. A buyer should plan on taking time to go and meet with local authorities in person to ensure they are not buying a property with a laundry list of violations that need to be remedied.
So if you are still with me and looking for a great equity builder to buy either as your personal home or an investment property; the financial reward and the pride of accomplishment can be huge when buying foreclosure and bank-owned homes and I’d love to help.