Twins & Co. Realty REO (bank owned) /Short sale tips
If you are purchasing a short sale or lender owned home (REO). Here are some things to keep in mind that make this type of purchase unique, and often times frustrating! Many of the items listed below we can’t control.
Here are some things I have personally ran into on these type of sales!
1) Sometimes the seller shortens the inspections period from the default in the contract of 10 calendar days to 7 calendar days after acceptance. Please be aware that you need to decide if you are committed to the property based on due diligence and inspections before the expiration of that time period.
2) You could possibly get a different type of deed to the property than a normal seller deal.
3) These transactions, especially REOs, can close late. Please ensure that your loan officer is aware that you are purchasing a bank owned property (REO) and that the loan documents will need to arrive to the title company *at least* 4 business days in advance of closing to ensure that the purchase will close on time. This is especially important if you have already given notice on your current home and/or are closing at the end of a month. The seller needs to review the HUD settlement statement before authorizing closing. You must trust your lender as they can cost you $100 a day for every day you close late and they will place you in breach of contract.
4) All short sales and REOs are sold “As-Is”. This means you need to take into consideration that anything you can see could have issues, as well as what you can’t see. Please factor this into your offer.
5) Sellers will usually do no repairs whatsoever on the property. We have had good luck getting any termite conditions addressed by most sellers of these types of properties, but all of the lender addendums will say that the seller will pay $0.00 towards termite related repairs. But, keep in mind that you, as the buyer, may need to pay for a termite inspector to come back out to clear conditions and issue a clear termite report. A clear termite report is required before closing on most loans.
6) Some sellers will not turn on any utilities. We’d say that most sellers will, with the exclusion of natural gas. Please confirm with your agent on this. We suggest drafting this into any offers so that you may confirm up front (in advance of getting bank addendums) that the seller will indeed turn them all on.
7) Please have your agent ensure that the water and electric are on before appraisal. Have your agent also make sure that the list agent flips the breakers for electric and turns on the water at the main, so that an appraisal/FHA inspection can be done fully (for FHA loan). If these are not on, and the FHA appraiser can’t test the hot water through the home and you will incur a re-inspect/appraisal fee as determined by your lender/appraiser.
8) Do not write the sellers’ name into the contract.
9) For the title company info, although it is typically the buyers’ choice, please write in “seller’s choice” to avoid a counter offer to clear that up. If you wish to have your title policy from somewhere else, you need to have your agent notify the list agent right away!
10) Make sure that you send a copy of the earnest money check with the offer. Some lenders will need your agent to drive the check to their office to process.
11) Sometimes it can take up to 2 weeks (usually on average 3-4 business days) to get a response from the seller on an REO property. If it is a short sale it could take 20 days-4 months to get a response from the seller (this depends on how far into the short sale process the home’s sellers are). Be patient.
12) When purchasing a distressed seller home, please ensure that you view the A/C units and plumbing prior to an offer. It is not uncommon to have a missing A/C unit stolen or stripped out copper piping from vandals. Also note any other issues that would be called out by an FHA appraiser (if you are doing an FHA loan) such as: broken windows, peeling paint, missing appliances, drained/green pool, etc. We suggest asking for these items to be taken care of up front on your original offer.
13) Make sure the list agent does not strike out the “CURE period notice” section of the contract.
14) Please note that it will be difficult to get the average utilities for these types of homes as most utility companies work off of the last 12 months and give you an average. If the property has been vacant for a long period of time, getting this information will be quite difficult.
15) If you and your agent ask for the seller to pay closing costs on your behalf, please keep in mind that the percentage they come back with that the seller will include (i.e. 3%) any home warranty and hoa fees included in that amount (most often times).
16) You must promptly sign any addendums that the seller sends you.
17) If you sign the offer documents with the Docusign digital signing service, confirm with the list agent that the seller will accept them. Also, if you are doing an FHA loan, all signatures on the amendatory clause need to be originals for your lender.
18) Most sellers on REOs negotiate verbally and once all parties are in agreement they will draft up the final details in a counter offer for you to sign, or they will cross out and re-mark items in the contract and addendums they wish to change. Please read through carefully then acknowledge.
19) If you are doing an FHA loan, make sure that your agent sends the ‘amendatory clause’ form with the offer. If you negotiate and the offering/contract price changes, the ammendatory clause needs to be amended to reflect the agreed upon purchase price. This will delay loan underwiring.
20) As soon as you have verbal acceptance from a seller on an REO, you should lock your rate with you lender, if you so wish, and get everything going with them. Most lenders will start processing on a verbal from a bank, although it can take up to 2 weeks to get the final signed contract and addendums back from the seller. Your lender will need those forms before they can order the appraisal. Some sellers consider the contract to be fully accepted upon a verbal word.
21) Note that if you ask for the seller to pay any upfront costs, such as the appraisal fee, they will not pay it prior to closing. So, please confirm with your lender if they need the appraisal fee up front, or if they can collect it through escrow.
22) The sellers on REOs have never occupied the property, and therefore will not have any ‘Seller Property Disclosure Statement’ to provide. They will also not be providing a “CLUE report” showing the last 5 years of insurance claims history.
23) Most lenders will charge between $50-$100 day for every day late you close.
24) Buyers are advised to re-key the property after closing as many may have had access to the home during the sale process. Also note that you may only receive the key in the lockbox and not any garage door opens (if applies) and usually no mail keys (if applies).
25) Sellers on REOs and short sales require proof of funds before reviewing your offer. This is why it is important to be pre-approved before you start looking and before the time a purchase offer is accepted. If you are paying all cash, a source of funds letter from your financial institution will be necessary before seller review. If required, you may have to get pre-approved through the bank who owns the property before submitting an offer.
26) Be sure to transfer the utilities at least a week before closing, to start on the day of closing, to ensure there will be no loss of services. Sellers will turn off all utilities promptly at closing.
27) If the home is missing an oven/range this will need to be written into a purchase offer for the seller to install prior to FHA appraisal. Same goes for broken out windows, peeling paint on older homes, and pools. Pools need to be full and clear prior to FHA appraisal/inspection. Please negotiate these items up front because after contract acceptance will be too late.
28) There can be no assignees or nominees in the contract.
29) Sellers will not sign any ‘Buyer’s Inspection Notice and Seller’s Response’ form requesting repairs. These properties are sold “as-is”.
30) On short sales, please keep in mind that your inspection period will not begin until the seller’s bank (s) have approved your offer.
31) Not every listing marketed for sale as a “short sale” will qualify. The seller needs to have a hardship in addition to the home going down in value.
32) Don’t get your socks too knocked off if you see a short sale listed for CHEAP. The list agent could just be trying to get offers in to submit to the bank to start the lengthy short sale process. We have heard of agents who bring offers on short sales only to find out that they are valued as much as $300,000 higher on a broker price opinion than the home was marketed for. In this case, the property will not be able to be sold by short sale and your time and energy has been wasted.
If you'd like more info about navigating the market of short sales and bank owned properties contact us today!
Christie
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