Ever tried to buy a bank-owned home lately? It’s becoming less of a pleasant experience each day. Many buyers enter the foreclosure market disillusioned because what they find is absolute risk. Here’s how it works. The homebuyer hires a real estate agent who presents an AAR offer to the listing agent hired to sell the bank-owned property. Before the offer even gets submitted, the description on the MLS property listing demands that the buyer submits an “AS-IS” offer and completes dozens of pre-qualifying questions. The buyer can’t even select his or her own title company anymore. If you’ve made it past this point, you’ll love what comes next. REO agents make it very clear that the bank “will not perform ANY repairs”. Although they simply say that’s not true, it’s a very difficult endeavor to say the least. One way to approach this as a buyer is to bring your inspector or contractor in at the beginning – before you write the offer. If you’re able to live with the numerous issues found in the foreclosure property your looking at, simply adjust this into your offer price. Yes, it’s true – you will most likely have an inspection period, but you signed the as-is addendum, remember? Negotiating with asset managers after the inspection period won’t go so well. There are occasions where the buyer has leverage because of the type of financing they use, but that usually covers a list of items that MUST be present and working as per the FHA inspection.
As I work more and more with Freddy Mac and Fannie Mae, it’s becoming clear that buyers and their agents are taking on too much risk. Talk to any Real Estate Attorney and he’ll tell you that nothing in the 18-page REO Addendum is in your favor. Does your agent go over the addendums with you or are they just looking to get the house under contract and deal with it later? Does your agent even explain the bank’s addendum to you? They should. It’s common knowledge that an addendum will override any previous written and verbal agreements made in the original offer. Read these addendums closely. Yes, you! Your agent isn’t trained to work with REO forms in school. Your agent was trained to use the Arizona Association of Realtors forms. Many addendums protect only the Seller and limit their liability in case of any future misunderstandings. Most importantly, they change the terms of the original offer. Always seek legal guidance before assuming the REO addendum is harmless.
Many addendums from Fannie Mae and other lenders/servicers/investors and so on disregard the original terms of the offer completely. There needs to be some kind of regulation to these practices. Bank-owned properties are far from precious, they have lots of problems. Many of these problems are rarely addressed and if they are, it’s not out of kindness. Buyers need to understand what they’re getting themselves into when they buy a foreclosed home. Whether it’s a home that’s been vacant for the last 30 months or a home with serious material latent defects, writing the offer price that takes future repairs into account ultimately determines whether we have a sale or not.
As an agent, I want my homebuyers to live in a home they love with as little risk as possible, but my buyers have to understand that the rules to buying are constantly being changed by the lenders – and often for the worst. If you’d like to discuss buying a foreclosed or bank-owned property further, please feel free to contact me via email at troy.elston@cox.net or call Troy Elston at 602-740-1035.
Troy Elston, West USA Realty is a licensed Realtor in Arizona and a member of the Phoenix Association of Realtors, Arizona Association of Realtors and the National Association of Realtors.
