Buying a Foreclosed Property

by lincolnroberts on July 13, 2012

in Ennis, Montana Real Estate, Latest News

While foreclosure activity in the Bozeman, Ennis, and Big Sky real estate makets has been slowing over the last 12 months it is still possible to find a great real estate deal on a bank owned property in the area.   However there are some pit falls that the buyer of a foreclosed home should be aware of  making an offer and purchasing a foreclosed property.

Foreclosed real estate in Ennis Montana

Find Bank Owned foreclosure properties in Southwest Montana

Knowing what to expect before you make your offer

  • The seller of the foreclosed property is a bank.  To them it’s about the bottom line they often have never seen the property and know nothing about it’s condition or location.
  • Most banks have a goal to sell a property in 90 days.  If the home sells to quickly they see it as they priced it too low.
  • Foreclosure properties often see a price reduction every 30 days until it is sold.  If you have put an offer on a property and it was not accepted it is possible to wait for the next price reduction.  Your agent should be able to give you an idea as to when that will be.
  • If waiting on a price reduction be prepared to act quickly.   I have seen many homes sit on the market with little to no activity for 2 or 3 price reductions, only to have multiple offers come in when the price gets low enough.

Be prepared when you are ready to place an offer

  • Most banks will require that along with your offer you give them a pre-qualification letter showing you are approved to finance the property.  If paying cash the bank will require proof of funds, an account statement or letter from your banker stating that the funds are available in your account.
  • There is an REO addendum that the bank will require you to sign and submit with your offer.  See and example from Fannie Mae here.  This REO addendum changes many of the terms of the standard Buy-Sell Agreement to be very seller orientated.
  • Know that the home will be sold as-is.   You should hire a qualified home inspector to do a complete inspection of the property, but know that this information is mainly for your own knowledge.
  • The REO addendum will often state that you have 10 days to complete the home inspection.  It is often  best to have talked to your home inspector before your offer is accepted to make sure you can get the inspection completed in this tight time frame.
  • Have earnest money check for your agent to hold.  Often times the bank will want to see at least 1% of sale price as earnest money.

Placing your offer on a foreclosed property

  • Have your real estate agent write up a Buy – Sell Agreement for the property.  To save time in negotiating use the same terms and conditions set forth in the REO Addendum.
  • Fill out the REO Addendum and submit with the offer along with your pre-qualification letter.
  • Allow several days for a response from the bank.

Negotiations with the bank on price and terms

  • If the bank does not accept your initial offer they will give your real estate agent a verbal counter offer.  The agent is most likely just getting information from the bank’s web site or via email.  Rarely are they talking to a person.
  • You may negotiate verbally back and forth for several days.  As a rule you can expect a counter offer back from the bank every 24 hours, so negotiations can take some time.
  • If the bank will not come down to a price your are comfortable paying you may have to stop negotiations and wait for a price reduction.   But be prepared to loose the property to someone willing to pay a little more at anytime.
  • Be prepared for a multiple offer situation.

Multiple offer situations when trying to purchase a REO property

  • Many times a bank will lower the price of a property to a spot where there are multiple parties interested in purchasing the property.
  • If you are negotiating with a bank to purchase a property and a second offer comes in you will be given notice of a multiple offer.  Often times you will be required to sign a Multiple Offer Acknowledgment Form.
  • They bank will call for the “Highest and Best offer” from all parties involved.  This is an uncomfortable situation for all parties, you are essentially bidding against the other party but do not know how high the other party is bidding.  Best advice is to simply offer as much as you are comfortable paying for the property.
  • If your are the low bidder in a highest and best offer call you will most likely not be allowed to increase your offer again and will be out of the negotiations.
  • If you are the high bidder in the highest and best offer call the bank will either except you offer or continue negotiating with only you.

Offer accepted on a Bank owned property

  • Once you have an accepted offer on the property you will be asked to re-submit the REO Addendum with the updated terms and conditions of the sale.
  • You now have a limited time to complete your home inspection.  Get an inspector to the property ASAP.
  • It may take several days to a week for the bank to actually sign and return the contract to you.  This is standard, they are not trying to back out of the deal.
  • Talk to your lender, they will need a copy of the executed contract (signed buy-sell agreement and REO addendum) to begin the process of financing.  Timelines are often tight with penalties if you miss the scheduled closing date, so get your lender working on the financing.
  • Review the home inspection report.  Make sure that are no issues with the property that make you uncomfortable.  You normally have 10 days to withdraw from the sale pending the findings of your home inspection and have your earnest money returned.

Closing on the Bank owned Property

  • The bank will choose the title company they prefer to use.   They will most likely provide a warranty deed and title insurance on the property.  Often times the title company will be an out of state company and your closing will be done through the mail.
  • The bank will often require 48 hours to review all final documents before signing the deed.   Make sure your agent works with your lender to get funding approval in advance of the scheduled closing date.
  • Be prepared for the closing to take a few extra days longer than expected.   It often takes longer for the bank to get the deed to the court house for recording.   I don’t know why this happens, but if just often does.

It’s Recorded You own the House

  • Get the locks changed.  Many bank owned homes all have the same key, real estate agents, contractors, cleaning crews, and many more all have a set of REO keys that open many homes.
  • Contact the utilities and have them put in your name.   The banks will cancel the utilities often on the day the property closes and records.
  • Verify your new home is insured.
  • Enjoy the new property, turn it from a house to a home and feel confident you got a great deal!

 

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