If you are considering purchasing a home in today’s market, the odds are pretty good you will be looking at a bank owned home.
In Big Bear only 10% of the homes listed are bank owned homes, yet they make up 40% of the homes sold. Simply put, bank owned homes drive the market. In many cases, the traditional seller cannot afford to price his property at a competitive level with the bank owned properties in his neighborhood. So, for the time being, bank owned properties are going to be getting the bulk of buyer’s attention. Because of this fact, it is very important for a potential buyer to be aware of some of the differences between purchasing a bank owned home and a traditional listing.
Bank owned properties are sold in As-Is condition. Simply put, this means the bank is going to be very unwilling to provide any repairs to the property to get it sold. In many cases, some banks will do a considerable amount of rehab work to the property before they put it on the market. I have sold many REO’s where the bank had put in all new flooring, carpet, counter tops, and light fixtures to make the home more sellable. On the other hand, I have sold many REO’s where the bank did absolutely nothing to the home and sold it in almost tear down condition. The one thing that was a constant in both instances was the banks stubborn unwillingness to consider any other repairs to the homes in question. The only things I have had them repair were extreme safety code violations. Other than that, expect to get the home in the same condition as it was the first day you saw it.
Expect them to change the contingency period. On the standard C.A.R. Purchase Contract, the contingency period is set at 17 days for a buyer to have all his inspections completed. This provides the buyer with ample time to have the home inspection completed and negotiate any repair requests that are generated by the report. It also gives the seller ample opportunity to have the termite report and any section 1 work completed. For some reason, almost every bank demands that the contingency period be shortened to either 10 or 14 days from the date escrow opens. In some cases, I have seen them shorten it to 7 days. This means, as a buyer, you have to be extremely proactive in your inspections. I always try to time it so we get the inspection done the very first day we open escrow. This allows just enough time to get the report back and make a decision on whether to go ahead with the purchase or not.
Another thing most buyers are not aware of is that the contingencies on a bank owned purchase automatically expire on the date specified in the bank’s addendum. This differs greatly from a traditional sale where the contingencies remain in effect until they are removed in writing by the buyer. This makes it of utmost importance for a buyer to complete all their investigations in an accelerated manner.
If you are paying cash, expect them to require you put down a larger deposit. Basically, a deposit is a sum of money that the buyer places into escrow to show the seller they are acting in good faith. 3% is universally recognized as the proper amount to show the seller that the buyer is serious. Whether the sale is cash or a loan, 3% is the industry norm. For some reason, most banks are requiring cash buyers to put 10% down as their initial deposit. You should also be prepared to show them a bank statement that shows you have the deposit funds available at the current time.
If you are an investor, or this is a second home purchase, be prepared to wait. Fannie Mae, who owns the majority of bank owned properties in this country, has just recently started a policy of making their homes more easily accessible to first time home buyers. To do this they have instituted a policy of waiting until the property has been on the market for 15 days before they will respond to any offer made by an investor or second home buyer. This gives people who are in the market for a primary residence first priority. If the home is in really good shape and listed at a good price, odds are it will be sold before investors will get a shot at it.
Lastly, be prepared to use the banks escrow and title company. For most of the last three years or so, it has been common practice that the bank was the one who got to choose the escrow and title companies to be used during the transaction. Because of this, banks were able to get bulk rates at the escrow companies they used. Service from these escrow companies varied greatly. Some of them were very professional and did a great job. Other companies became so overworked and under staffed the service was a joke. In order to appear they were being more reasonable, many banks have offered an alternative. They will allow the buyer to choose the escrow and title companies, provided the buyer agrees to pay for all fees charged to both the buyer and seller. Yes, as long as you are willing to pay all the banks fees, you can use the escrow company of your choice. Since the vast majority of buyers are unwilling to do this, the banks are still in the driver’s seat in regards to who is used for escrow and title.
In Bergen County we are hitting a lot of short sales now. Far more than the past. It seems it is all kind of catching up. They are hard to get done. However, with a good realtor and attorney they can happen.