If you've tried to buy an REO or Bank owned property lately, you know it is not that easy. Many other buyers are in the hunt and the process is often frustrating and even angering. The big question on many buyer's minds is, "How do I get my offer accepted?"
We contacted a number of real estate agents who specialize in representing bank owned properties and solicited their opinion. We combined our personal experience with that of these listing experts to provide a number of tips that may help you win the bank owned home purchase battle. Below are the results:
- Make sure you include all the necessary documents when presenting an offer. Many agents forget to include HOA addendum, Lead Based Paint (if it applies), LSR or other documents. Banks don't have time to chase down documents and may simply reject your offer from the get-go.
- Be certain all signatures and initials are present. The banks tell us incomplete contracts are often rejected. Also, keep
- Don't present an offer without an LSR or proof of funds attached. Your proof of funds should be in the name of the buyer, recent, and from a reputable source. Some banks want the LSR to come from a lender who funds their own loans and not a mortgage broker.
- We are told, at the time of this article, nearly 90% of the REO single-family homes under $125,000 receive multiple offers. This is not to say all the offers are above asking price, yet reason would suggest some will be. Many bank owned homes are aggressively priced and some buyers are willing to offer more than the list price if they feel it would still be a good deal.
- An escalation clause with a cap is another tool you may want to employ. They were popular in 2004-2005 and are seeing their way back in this market too. Here is a link to a thoughtful article from Realty Times about escalation clauses.
- Some buyers win the battle by waiving inspections. We feel this is a dangerous approach. Most buyers do not have the knowledge or skill to take this route and may end up buying a home with significant problems and costly repairs. Do not take this option casually.
- Be kind and pleasant to the listing agent. Many REO agents are carrying huge work loads and the variables involved in representing banks can be a nightmare. As buyers agents we do our clients a service by being nice and patient with the listing agents... it's the honey principle.
- We asked if cash buyers have a big advantage. Most indicated that cash is not necessarily a top consideration, yet it does offer some advantages from the seller's (bank/asset company) side. FHA and conventional loans have stipulations that may make it advantageous for them to accept a cash offer; Considerations includes, but not limited to:
- Absence of appliances such as oven, cooktop, AC units, and dishwashers.
- An empty pool, green pool, pool/spa with missing equipment.
- Properties with missing toilets, sinks, showers or tubs.
- Homes with mold issues.
- Properties where the copper pipe has been striped.
- Homes with excessive damage.
- Units with active termites.
- Every listing agent we talked with said to please be patient. Daily phone calls will not make things happen faster.
- Make certain the buyer knows many banks require them to pay all closing costs including: buyers & sellers title insurance, escrow fees, HOA transfer fees and such. This is a surprise to many when the HUD pre-audit comes. If the buyer does not have the needed funds and can not complete the transaction, he/she may lose their earnest money. This requirement is usually well-documented in the bank addendum.
- If the bank asks for additional documents, addendum, counter offers and such... move quickly. Some offers are lost because the requests were not made in a timely manner.
- If you are asking for closing cost contributions, many banks are set up to offer up to 3% of purchase price assistance. If you ask for more than 3%, it may create a special circumstance and cause the offer to be denied due to lack of conformity or delayed while the request goes to committee. We suggest you talk to the listing agent to ascertain bank policy on contributions.
- If scanning the purchase offer and related documents, make the file in as small as possible. Scanning at 150-200 dpi is generally fine. Click here for some scanning tips.
- Call the listing agent prior to sending your offer by fax or email and confirm receipt. Purchase offers are often large files and sometimes email spam filters and even your own email hosting server will reject the file.
- Give plenty of time to close escrow. If the property is in an HOA, understand it take more time to procure and process these documents. In addition, if your client is using lender financing, this can add to the time line. We like to call both the lender and escrow companies and ask them their suggested time lines. Look at the Bank's addendum to the contract as many have severe penalties for failing to close escrow on time.
We hope that this information is of help. As we get more information we will update this article. Special thanks to Ron Houston, Beth Jo Zeitzer, Cythia Kenner and Jeff Miller for their contributions.
Best to you,
The Urban Team at Realty Executives