Foreclosures have presented a lure of a deal for years as the real estate market has had its ups and downs. Over the past few months, we’ve been hearing a lot of buyers with some incorrect ideas about how buying foreclosures in Austin works. Here are some foreclosure buying facts and fiction to help set the record straight.
Foreclosure Buying Fiction
Here are some foreclosure buying myths that we’ve heard.
Banks offer Bargain Prices
Banks get an independent, professional appraisal and at least 1 broker price opinion to help establish an asking price. The asset manager’s job is to get the highest return possible from the sale. Don’t expect a “steal-of-a-deal” here.
Banks are Desperate and Deeply Discount
Banks sell homes at market value. All prices must be justified to and approved by an asset disposition committee. The bank is not desperate and discounts only when circumstances demand. New listings may require seasoning. Banks typically impose a waiting period before reviewing offers to allow amply exposure to the marketplace.
New Financing Incentive Package Included
30 years ago sometimes, today no. The loan department is separate from the asset disposition department. You will need to arrange your own loan. FHA and VA loans may not be acceptable for all foreclosures, especially those in poor condition. If that is your source of funding, REOs may not be the right choice for you.
Bank Pays for Termite and Structural Repairs
If any discretionary repairs were needed, the bank would have completed them before the property was placed on the market. Most banks will not agree to make any repairs.
Cash Offers Get You a Better Deal
The bank is looking for the highest and best offer with a strong likelihood of closing. Proof of funds will be required on all-cash deals. A strong down payment by a pre-approved buyer offering a higher price will get the nod over an all-cash, low ball, fast close offer.
Bank will Accept a Home Sale Contingency
Untrue, home sale contingencies are generally unacceptable, unless your property is in escrow and about to close soon.
Foreclosure Buying Facts
Here are some foreclosure buying facts.
All Sales are “As-Is”
What you see is what you get, so you should carefully inspect the property. Most REO properties are in need of repair; some have been vandalized, others simply neglected. Know what you’re getting yourself into, or you might stumble into a money pit.
Most Banks Ask that the Buyer be Pre-Approved by their Loan Department.
The bank wants some assurance that the buyer is financially qualified. The buyer does not have to actually take the loan from the bank and can get a loan from another lender.
All Communication is Through the Listing Broker and Usually only by Email.
You will not be able to speak with the bank or asset manager directly. Don’t call the listing agent or expect updates and don’t expect a rejection notice – you’ll just be ignored.
Expect Verbal Negotiations
(counter offers) through the listing agent with a final agreement drafted once you and the bank have agreed to the price and terms. No renegotiation once the terms are agreed upon, the deal is the deal.
No Agreement until all Parties have Signed.
You do not have an agreement until all parties have signed the contract and addenda, no matter what the listing agent tells you. If your agreement is not in writing, it’s not an agreement.
Penalties for Not Performing
The bank will impose “Per Diem” dollar penalty if the buyer misses a performance time deadline. Missing a deadline could cost you money or even void the contract.
Beware of the Bank’s Addendum
You will be required to sign an additional document created by the bank that supersedes virtually every term in the contract. Read It! Have you attorney read it! Your buyer’s agent cannot offer legal advice about it. This addendum is legally binding. It protects the lender and may not be in your best interests.
Foreclosures Often Sell for Near List Price or More
Most REO homes are far from perfect. The quality of the REO inventory is generally inferior to the general re-sale inventory of other homes listed for sale. REO homes can sell at significantly higher prices than their listed prices as the demand for REO homes is high and inventory is lean, especially in the most desirable neighborhoods.
Proceed with a Foreclosure with Caution
Buying an REO is probably not right for everyone. My advice is approach an REO purchase with caution, use good judgment and get advice from an experienced buyer’s agent. Use an attorney for legal advice; your agent will let you know when that is appropriate.
Still Not Scared Away from Buying REOs and Foreclosures?
If you’re willing to put in the time and follow the bank’s process, we can help you successfully purchase a bank owned homes. We’ve helped many buyers over the years purchase homes from banks and know how to navigate the process. Check out our Austin Home Buyer Representation Program to learn how we’re different than most Austin Realtors. Then call us at (512) 827-8323 or email us at info@11OaksRealty.com to schedule a no obligation consultation.