(aka, bank owned
property) property is a unique experience, unlike regular real estate transactions where the buyer
is purchasing from a new construction builder or an individual seller. Because there are so many REO listings in the greater Sacramento area, often I am asked what a buyer can expect in these types of transactions, and the only thing for certain is you should "expect the unexpected." I have done several of these transactions, and each one has been a totally unique experience, however there are some common threads I have noticed in each transaction. I have assembled some of my experiences for your benefit:
1) Many REO's are listed with local real estate agents if they do not sell on the date of the Trustee sale on the courthouse steps. These agents generally will have anywhere from 10 - 150 listings at any point in time. Often times they will employ a team of other agents and assistants to field inquiries and will be very difficult to get in touch with directly. Unfortunately this means they will often not return buyer inquiries, nor will they return inquiries of other agents.
2) Expect the bank to require a 1% deposit with your offer. While any regular transaction requires a deposit of some kind with your offer to open escrow, banks will require 1%. If you offer a $1,000 deposit on a $250k property, the bank will likely counter that your deposit needs to be $2,500.00.
3) Expect to remove your contingencies with 5-7 days. This is really fast! Most regular transactions have roughly a 17-day timeline for contingency removal...within this time period you will conduct your inspections, appraisal, move toward obtaining your financing etc. Banks ask for a very short investigation period.
4) Expect that there will be no disclosures from the bank with regard to the condition of the property. Obviously the bank has never lived at the property in question, and it is very likely that a bank representative has never visited the property.
5) Expect to take the property "as-is." I have in the past negotiated some major repairs - for example if the electrical panel has been vandalized, it can be negotiated that the bank fix something like that. However, minor repairs - for example fixing a leaky faucet - will not be completed by the bank.
6) Expect that the bank will not provide you with any reports. You will be responsible for obtaining things like a pest inspection, roof inspection, home inspection, etc. Very seldom are these provided.
7) Expect that the title and escrow companies will be out of town. My experience is that they will be located out of southern California. The escrow folks will have something like 100 escrows going on simultaneously, and you won't get great service or fast response from them. The Title company will take a long time to issue a Preliminary Title Report. Title and escrow are usually done by two different companies under these circumstances, unlike our local Sacramento custom where title and escrow functions are done by the same company.
8) The bank may require that you be pre-qualified for your loan through them. I see this a lot with Wells Fargo and Countrywide (now BofA) REO's where you are required to submit a pre-qualification letter from one of their own reps in order for your offer to be considered. If you are trying to purchase a Fannie Mae REO, you may be required to get pre-qualified for the HomePath Program. You are not required to actually use these lenders or programs for your loan.
9) Counter offers from the bank will be delivered verbally. Yep, verbally. Once a verbal agreement has been reached, the bank will generate its own "Addendum" that over-rides your purchase agreement. Read through it carefully. It will contain lots of language pertaining to the property being sold AS-IS in its current condition, and that the bank is to be "held harmless", or not be liable for any unknown or pre-existing condition.
10) Your fully executed written purchase agreement will arrive 7-10 days after verbal acceptance...or longer. Yikes! This can pose issues for your lender, as most of the time they need an executed contract to start your loan process.
11) The bank will charge you a daily penalty fee if you close escrow late. I have seen this be anywhere from $100/day to $400/day.