There are many different names describing foreclosed homes. REO, for example, stands for Real Estate Owned, a.k.a. – Bank Owned or Lender Owned property. All these terms mean the same thing.
The bank has went through the judicial foreclosure process and they have taken back the possession from the previous defaulted borrower of the property and are now prepared to sell it in AS-IS condition for current market value.
As Is means that nothing is warranted by the Bank/Seller and that Seller will not be making repairs to the property.
If buyer is having an inspection, only major defects or Financing Appraisal Conditions may be considered by the Bank/Seller. Buyer is still entitled to perform their own due diligence by having a professional home inspection to determine what the condition is before moving forward with the purchase after getting an accepted offer without loosing any Earnest Money. Typically the banks offer a 7-10 day inspection period to the buyer after the Bank/Seller delivers the buyer a signed executed contract.
Consider How Competitive Your Offer Is!
You may have the idea that a bank owned home can be purchased for 30-50 cents on the dollar. This is a misunderstanding they have gained primarily by subscribing to somebody who calls themselves a guru and following their step by step plan to make millions in distressed property.
Banks do not sell foreclosed properties in the open market for these types of discounts. Bulk packages in the millions of dollars are sold at discounts to note value that sometimes go this low. The kind of properties you will see on the open market are priced based on a review by two real estate brokers and one appraiser. A price is determined by the bank based on these reports.
The values submitted by these parties take into account condition. These properties are usually selling within 30 days and the reason is they are priced to sell at market value. I will review any property chosen to let you know how long it has been on the market and what might be causing the home not to sell so that you can make informed decisions.
If more than one offer is received on a property, the Bank/Seller might chose to respond in several ways. They might ask all for Highest and Best. If a highest and best is requested, final offers will be due by a pre-determined time. Some banks also have a Multiple Offer Disclosure form that must be executed by the Buyers Agent, the Buyer, or both.
In a Multiple Offer situation the bank might choose to counter only one offer and reject others. For a revised offer to be considered, you must complete the requested form within the time frames stated. If you choose to not do so, your offer will be submitted in its original form and it will be noted to Seller that you did not complete their form.
All REO properties have these addendums. They will supersede the original state association documents or any other purchase document. Please make sure you understand that they are basically negotiating terms and then the Addendum will become the contract for purchase.
Such Addendums are not available until a transaction has been negotiated. The bank prepares them once the terms are agreed to. The buyer will have a very short time (24-48 hours) to review. It is not a negotiable document. Yes… that seems unfair but that is the way the game is played.
The addendum will include the agreed to terms, plus language that will state the property is being sold in “as-is” condition and some very specific deadlines. If the buyer can’t live with anything they discover in the addendums, then they should cancel the agreement. If the signed bank addendums are not returned, with earnest money, within the requested time line…then they will put the property back on the market. If the buyer then decides they wish to proceed, it is very likely the bank will make them renegotiate the transaction.
Every transaction has a contract date. If the property does not close by the contract date through the fault of the buyer/lender, per diem will be assessed on a daily basis. Please make your lender aware of this. Per Diem clauses are a part of all Addendums required to be executed as part of the Purchase Agreement. Such per-diem penalties will be specifically identified in the required Bank Addendum. In general assume that it will be charged if the closing is delayed beyond the agreed contract date due to fault on the buyers or lender.
Most banks will require a minimum of $1000 or sometimes 10% for cash offers. All earnest money must be in the form of a cashiers check – NO EXCEPTIONS USUALLY. Earnest Money may be forfeited if a transaction does not close due to buyer non-performance.
When do I Know I have a deal?
A common source of confusion on bank owned homes is what constitutes an actual contracted agreement. All bank-owned properties will give a verbal acceptance only until the bank’s specific purchase contract terms (in the form of a bank addendum to the purchase contract) are executed by both the buyer and the seller.
There are situations where the bank addendum is not executed and returned in a timely manner to the bank and the bank proceeds with accepting another offer. It is imperative that if you receive an acceptance for a bank owned property that you execute the bank addendum and return it within the demanded time frames. Finally, please understand that no offer is fully accepted until the Seller signs the Addendum package returned to them which can take 2-10 business days sometimes after verbal.
Homeowner Association Dues
HOA’s are often owed money by the defaulting previous homeowners. These amounts are settled by the title company prior to a closing. The bank will be obligated for HOA fees for only the date of their foreclosure forward. It is up to the HOA’s to privately collect from the previous owner. The information as to what exactly are the monthly, quarterly, semi-annual or annual dues should always be confirmed for accuracy by the actual HOA management company servicing the specific subdivision or planned community.
Utilities for Inspections
You will be informed with your accepted offer what utilities will be activated by the Seller and what utilities will be your responsibility in case of inspections. Activation of utilities will be approved only if safe to do so. After the inspections, any utilities that are Buyer’s responsibility to turn on, will also be Buyer’s responsibility to also turn off.
If electricity was previously on, and paid by the Seller, it will be turned off as of the day of closing. Please make arrangements to have utilities transferred into your name.
You will have to go into the local post office that services the new property address and provide some type of proof of purchase which the final HUD-1 from the title company will work. You can determine which post office this is by going online to www.usps.gov or calling (800) 275-8777. The cost of the lock is usually about $40-$75 and this usually can take a 2-5 business days to get done so it is a good idea to initiate immediately after closing so you can start receiving mail at your new address.
Keys Received after Closing
Please have a locksmith ready to change all locks immediately after closing. If a key is in the lockbox, it is a master key coded in such a way that there are probably 500 other homes it fits into and there are probably many investors and other people who have this key. IT IS NOT SAFE TO NOT IMMEDIATELY HAVE THE LOCKS CHANGED OR RE-KEYED.
There is absolutely no obligation for meeting with us to review how we can help you buy your new home. Too busy to call? Email us by filling out our quick “Buyer Request Form.” We look forward to demonstrating our results to you!
Steps to Purchasing a Home in Phoenix Metro Arizona
- Greater Phoenix Arizona First time Home Buyers
- Explore Loan Pre-Qualification
- Your Loan Options
- Choosing the Right Greater Phoenix Arizona Realtor®
- Your Appraisal Value
- First Offer Basics
- Your Home Inspection
- The Closing – Breakdown of Fees
- Title and Escrow
- Review Buyer Documents
- Why Hire a Greater Phoenix Arizona Buyers Agent?
- Buying a Short Sale?
- Investing in Greater Phoenix Arizona Rentals
- Glossary of Real Estate Terms
- Handy Financial Calculators
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