Foreclosed properties are also referred to as REO (real estate owned) or bank owned properties. They properties are listed in the Multiple Listing Service (MLS) by a broker who has been selected by the bank currently owning the property.
As a buyer, it is in your best interest to have your own Buyer Broker/Agent representing you — not the bank’s agent.
There are some issues buyers should be aware of with the foreclosure category of homes. But despite the issues and quirks, there can be some bargains for home buyers.
- Since the bank has never occupied the home it will not provide any disclosure information. Most likely the bank will have no idea anything about the condition of the home and has never seen the property. When the buyer enters into a contract that is a bank owned property, and where there is not a traditional Sellers Property Disclosure Statement form, the buyer will be given a blank form and asked to sign that they have received this form, which acknowledges they are aware of the information the seller/bank is not providing to them.
- All foreclosures are sold “as-is”. Banks will not make any repairs. Also banks will most usually not do a termite treatment if evidence of termites is found when the buyer does their home inspections. If a buyer is paying with a loan, and there is evidence of termites, the lender will require a termite treatment before they make the loan. The buyer should plan for enough money figure to pay for this before they buy the home.
- Most of the homes being sold as a foreclosure have all the utilities turned off. When the buyer gets an accepted contract and enters into their inspection period the buyer will need to be responsible, in almost all cases, to turn on the utilities in the home, in their own name, in order to do inspections. This can result in some risks.For example, consider that when the utilities were turned off there were some faucets left turned on, such as a faucet for a washing machine that is now removed, or other similar situations. When the utilities are again turned on, there may be some risk of damage to the property if water comes gushing in through the open faucet that is no longer attached to anything. The buyer who is turning on the utilities is the one responsible for any damage – even if they ultimately do not go through with the purchase contract to buy the home.
- Often times the bank will refuse to pay any of the “traditional” seller closing costs which means if the buyer wants the home they must pay those closing costs, as well as the normal buyer closing costs.
- The banks all have their own addendum and forms which they insist the buyer sign and agree to. These are received by your agent after the bank has accepted the buyer’s offer. These bank addendum forms basically take away many of the buyer’s rights, as provided by the Arizona Purchase Agreement. There is no way to buy a foreclosed property without agreeing to the terms of their addendum.
- Each bank has their own particular quirks as to how paperwork must be handled. As your agent we work to determine what the quirks are for each property and offer you make. The quirks for one property may be different than that of another foreclosed property. For example, there are some homes that only individuals who actually plan to live in the home full time can make an offer on during the first 15 days the home is on the MLS. If the buyer is a second home buyer, or investor, they cannot make an offer until day 16. Other sorts of quirks may be how the earnest money can be made out. Some banks insist that the earnest money be in certified funds, or they may insist the earnest money be made out on a blank check – (since they assign the name of the title company after they accept an offer.) Your Buyer’s Agent works to figure out all these quirks for you – the buyer.
- In “traditional” sales, the buyer and their agent can select the title/escrow company that they want to use for the close of escrow. This is not the case with 99.999% of all foreclosures. With most foreclosures the bank who owns the home dictates which title company must be used for closing escrow.
- While it is commonly assumed that all the Buyer’s Agent fees will be paid by a seller, in cases where the home is a short-sale or foreclosure, sometimes the banks are not paying this entire fee. In a case where the seller is not paying the full buyer’s agent fee, the buyer will be responsible to pay the short-fall.
- A bank has the right to continue to take offers, even if they have ratified one. It is a rare situation where the bank will take another offer once they have accepted one and it is in escrow — but it can, and has been known to, happen. The contract is never 100% until escrow has actually closed.
- Depending on the property, there may be other quirks and issues particular to a specific property. Despite all these quirks, there are many good deals and bargains to be had in the foreclosure category of homes.