When you’re looking at buying a house, whether it’s your first home or not, you have a lot of options. And regardless of whether this is your first house, or your second, or beyond, the process is still a daunting one. Homes cost a lot of money, and they take time to close on. That’s on top of the amount of time that you’ve already spent looking at a house.
So, you’ve heard about bank-owned homes, and you’ve heard that buying a bank-owned home can be just as easy as buying a privately owned home. After all, a bank-owned home is a foreclosure that wasn’t sold at auction. Now, the bank just wants to get rid of the house and be done with it. Right?
In a manner of speaking, yes. But that’s not entirely true. Of course the bank wants to sell the house, but they want to make money as well. Because bank-owned homes are listed below market value, they can attract a lot of potential buyers and offers. And with multiple offers, you get a bidding war. The price of the house can quickly jump above market value.
Buying in a Mixed Market
Buying a bank-owned home, or even a regular home, can get even more confusing. If there are a lot of bank-owned homes being sold in a market, they can drag the market value of regular homes down, because values are based upon what’s selling and for how much. And you might not even know that the home you’re looking at is a bank-owned home, because the bank won’t list the home as a foreclosure. This isn’t necessarily a bad thing; the bank is trying to compete with the rest of the market.
But when you don’t know that the home you’re looking at is a bank-owned home, there can be some problems. For one, the bank’s not going to know the history of the home. In a regular home, the seller would be able to tell you of any issues in the home. Sometimes a home inspection doesn’t reveal everything, and the seller might know something that the inspection doesn’t show. When you buy a bank-owned home, you don’t have any of that information. The bank doesn’t know the history of the house, or if there have been any problems in the house previously, like mold.
Sold As Is
Does the bank-owned home you’re looking at buying need repairs? You’ll probably going to be on your own. Banks seldom, if ever, make repairs to a bank-owned home. When you buy a regular home, you’ll have some negotiating power if a major repair comes up. The seller can either agree to fix the issue, lower the selling price so you can fix the issue, or you can walk away. When it comes to the bank, you’re on your own. The bank is not likely to fix the issue or even negotiate on the price.
A large amount of bank-owned homes are typically managed by a single REO agent. And all of those agents are underneath an asset manager. Because of this, offers can be delayed for weeks. And sometimes, banks won’t even consider an offer unless you are preapproved for a mortgage from a lender that they have approved. The process can take a long time, even when the bank rejects your offer.
In Favor of the Bank
You can almost guarantee that if your offer is accepted that the bank will change it. The bank will create a long, sometimes ten or more pages, addendum that essentially overwrites your offer. The contract is rewritten to favor the bank, and anything that would have protected you, the buyer, will be changed. If you’re buying a bank-owned home, you’ll want a lawyer on your side to go through the contract so you fully understand what the terms are. You don’t want to get stuck with something that you didn’t know was even a part of the contract.
Paying for Extended Closing
Delays happen. Maybe your paperwork has to get sent to an escrow company across the state. Maybe your lender just needs another day or two to finalize the loan underwriting. When you’re buying a regular house this isn’t a big deal, but the banks will charge a fee for each day that you have to extend. Why? They’re a bank, and they can. It’s as simple as that.
Do Your Homework
Of course, even with all of this said, it’s not that you can’t, or shouldn’t, buy a bank-owned home. It’s a viable option, and you might be able to get a great deal on a very nice house. Just make sure that you are prepared. The process is very different. Use your own local real estate agent that has had experience with bank-owned homes, and take a contractor with you when you inspect the home. The less surprises the better.