Buying Foreclosures, Short Sales & REO Properties
To be sure, there are many deals to be had when it comes to distressed properties, but these transactions are not for the faint of heart. They require patience and willingness to accept the property “as is” when the closing finally occurs. Banks rarely negotiate on flaws an inspector may find with the house, so buyers often have to accept the property warts and all or forego the sale entirely.
Buyers of foreclosures, short sales and REO properties do, however, have the right to have property inspections performed, and they usually may walk away from the purchase agreement without penalty if they find a flaw with the house they’re not willing to accept.
Buying a Short Sale Property
Despite what the property type’s name may suggest, the process of buying short sale properties is often long, averaging from three to six months for normal transactions.
First, an offer must be submitted to the seller. Because the seller still owns the property (unlike foreclosures), they must agree to the purchase agreement terms, so some negotiation may take place. Once a purchase agreement is made, an offer is submitted to the bank, which then orders a Broker Price Opinion (BPO), or appraisal, to be performed on the property. The bank uses this information to determine the property’s market value, which takes one to three months.
If the property holds more than one mortgage, the process will also involve Jr. lien holders (the original lenders), which can cause the process to take longer.
Once the bank finally determines what price they will accept, the selling agent is notified. If the buyer agrees to the price, the bank will allow for 30 to 45 days before closing. During this time, the buyer still has the right to further inspections and other terms held in the purchase agreement. Most banks don’t negotiate inspections or repairs for short sale properties, so after inspections, the buyer should assume the property will be purchased in “as is” condition.
Buying a Foreclosure or REO Property
Unlike short sales, foreclosures typically don’t take very long. The bank which owns the property already knows the price they need to form an agreement, paving the way for potential buyers. Foreclosure purchasers usually hear back from the listing agent regarding their purchase offers within 72 business hours.
Like short sales, the bank makes no claims about foreclosure property conditions and may require the buyer to sign addendums which protect the bank from being held libel for the property’s condition. Additional buyer charges are often tacked on with these addendums, so they should be read carefully.
The foreclosure property potential buyer should also have a title search performed with local taxing authorities and municipalities to ensure there are no back charges or pre-existing liens attached to the property.
Some cities have ordinances and codes which apply to foreclosed and vacated properties, so it’s a good idea to check with the city to find out what procedures may be required of the property buyer. If the foreclosure property buyer is expected to update building codes and repairs after purchase, he or she should be aware of these expenses before a purchase is made.