Property Conditions
There are many options that are available to individuals, families and other house hunters intent on finding their dream house, or a property that they can spruce up to rent out and make some extra money off (provided it doesn't all go to the IRS!).
Whilst the majority of people go straight to the real estate agents with a wish list of; where, when, how and why regarding their vision of the great home, other people go to the banks and find out what houses they have just fore-closured on.
Whilst this may not be the option that first springs to mind for many, it does have a lot of attractive features that make buying a property that is owned by a bank, or Loan Company, which is know as an REO or Real Estate Owned property an attractive one.
Looking For A Quick Sale
In most cases a bank or Loan Company is looking to generate a quick, in order to get the house of its book and release its investment potential. Because of this banks will usually offer some, or all of the following benefits in a bid to have the house sold:
For sale price savings of up to 20%, off relative home market value
· A simple way for a first time homebuyer to buy properties
Prospective REO buyers have instant access to the property for any inspections that they wish to have carried out No back taxes or liens to worry about; the bank will clear all of these up with the necessary parties Negotiability on the following: rehab costs, interest, closing points, loan amount, etc. Almost 100% risk-free venture Accept a less than normal down payment
Whilst all of the above benefits might look attractive, there maybe a few catches along the way.
The main role of a bank or Loan Company is to maximize their shareholders wealth. Banks and Loan Companies are Public Limited Companies, and as such have an obligation to the people who invest in them to attempt to maximize the amount of money that they invest.
A bank that has a REO wishes to sell the property, to generate cash, which they can then invest. However, even though the property is not generating a cash amount whilst the bank, or Loan Company still owns it, the bank will not wish to do any of the following:
· Sell the property cheaply: Under the obligations to the shareholders a bank or Loan Company must try and release the maximum amount of value from any property sale. Selling a property too cheap can be construed as negligence on the banks side and could cause problems with shareholders or those representing the shareholders, such as auditors and chairpersons.
· Performing un-necessary repairs: Again, the role of the bank, or Loan Company should always be to maximize their shareholders wealth, i.e. their return on their investment. Banks are therefore reluctant to shell out monies for repairs on a property, baring the absolute minimum. It is therefore uncommon for a Loan Company of bank to have repairs carried out on a property that they are in possession with.
"As Is"
Due to the fact that banks wish to leave any repairs for the next owners of their REO property, they always attempt to sell the property in what is know commonly as 'as is' condition. 'As is' refers to the house sale in the condition it was in when the bank or Loan Company reposed the property.
While most people who are selling a home concentrate on making the home the best it can be; trimming hedges, cleaning inside and out, making minor (or major) repairs, a reposed home is unlikely to have had the same type of treatment due to the following reason: Lack of time and money.
People who receive notice of foreclosure from a bank or Loan Company normally will have no time to clean the house, nor will they want to, as this will take time and money. The reasons that they are in foreclosure will probably be because they can't afford the repayments, therefore it is highly unlikely that they will have the time, money or effort necessary to either clean the house or make the necessary repairs that are usually needed. In general around 4% of the value of a property is required each year in maintenance alone. For example a $250,000 property will require $10,000 in repairs an maintenance each year. A person in foreclosure, who could not afford mortgage repayments, is unlikely to be able to afford such costs.
Because banks always want to sell a property in its 'as-is' condition means that they most you can expect from a bank, or Loan company, in terms of certification regarding the house is what is called a section 1 pest certification, which says that the property is fit for human habitation, i.e. there are no pests in the property.
Even obtaining the above section 1 pest certificate can be hard work on your part, as bank will only provide it if you specifically ask for it in your offer to them; again it costs them money to obtain the certificate, something which they want to minimize.
One perk of buying an REO property is that the bank will allow you to have the house inspected at your request, although you will have to pay for a house inspector to perform any subsequent inspection on the property, and even if an inspectors finds any major faults, the bank or Loan Company will be un willing to foot the bill for the repairs to be made.
Inspection
Regardless of whether a bank or Loan Company will pay for any repairs, it is still a good idea to have an inspection carried out on the home, at least for your own personal interest and safe knowledge.
As a home inspector is a professional person there is a few that accompanies any inspection; normally around $300 for a house valued at $250,000. Whilst this fee may seem large an inspection is worth every cent, as the inspector will perform a thorough study of the house you intend to buy, including its general condition and any faults or problems that may need to be rectified now or later. After finishing the analysis the inspector will produce a written report, detailing all their findings, which you can then use in your offer to the bank or Loan Company.
If you are thinking of buying the property and are in advanced negations before an inspection of the property can take place, then you should have an inspection contingency period written into the contract. This contingency will allow you to renege on any deal if an inspection reveals major problems with the property that you were either unaware of or feel you can not live with.
Even though you may have agreed to buy the property in its 'as-is' state and condition, it is always worth giving the bank the time and opportunity to make repairs on the property, or give you credit after you have had inspections carried out by a certified home inspector. Sometimes, due to the condition of the property, a bank may re-negotiate the price to save them having to cancel the transaction and put the property back on the market and go through the whole process all over again, with another buyer; however this should not be taken for granted.
Once you have agreed to buy the property, in principle, you should consider how you are going to purchase the property. Do not assume that you can get a loan, or payment plan from the bank or Loan Company you are buying the property from as most banks will not provide financing for their own REO sales, however you should always ask if you need to.
Offer forms of finance are always available, and you should ask your real estate agent what theses are, as well as advice from people you know and trust.
