PURCHASING A "NON-TRADITIONAL" HOME
Short Sales
- Offer to purchase submitted to the listing agent
- Offer will be presented by listing agent to homeowner/seller
- If offer is accepted, escrow will be opened by your buyer's agent
- Here's where your patience is needed and the lender's approval is sought.
- Lender's approval received - Agreement Notice provided to buyer by listing agent and seller
- INSPECTION PERIOD BEGINS - this is the 10 day inspection period called for in the purchase contract.
- Financing in order, close of escrow takes place 21-45 days after the Agreement notice is provided (amount of time depends largely on the type of financing being sought, but seller's don't usually like to go more than 30 days past the agreement notice for the close of escrow.
This is an extremely simplified timeline and should only be used to understand how a short sale process works. Depending on the agents and lenders involved, the process can vary greatly. If the listing agent does not have their seller accept one offer, but instead opts to submit more than one offer to the seller's lender for consideration, then the above steps change. Once the lender has approved the sale, counter-offers will be submitted to the prospective buyers asking for their "highest & best" offer. If your offer is the best offer and the one then chosen by the lender, the seller will then "accept" your offer by signing the purchase offer. At that point, escrow will be opened and all timelines specified in the offer and bank addendum will begin.
Just be aware that if you place an offer on a short sale, no matter whether the offer is accepted by the seller outright or if the seller prefers to submit all offers to the bank for consideration, patience is a must.
Bank-Owned Homes
If you are interested in purchasing a bank owned property (also known as REO property), there are a few things that you, the buyer, should know.
- Most bank owned homes are considered "distressed" property, and will be sold "As-Is, Where-is". This means that if you decide that this is the property for you, it will be sold to you with no repairs being made.
- Hire a licensed home inspector. If you are working with a realtor, they will more than likely have one or two companies that they work with on a regular basis.
- Be aware that you may need to pay to have the utilities turned on in order to have the home inspection performed. This will include water and electricity. In many instances, however, the utilities (with the exception of gas) will already be turned on.
- Because the current owner (the bank) has never lived in the property, there will be no Seller Property Disclosure provided. This form usually gives information on the property such as improvements made, water leaks or pests (such as termites, ants, etc).
- If the home inspector tells you that there appears to have been a leak, you may wish to have an additional "Mold" inspection performed. Likewise, a separate roof inspection and pool inspection should be factored into your costs.
- Make sure to have a licensed termite inspector check out the property. Just because you can't see an infestation doesn't mean that there isn't one.
If your offer is accepted by the bank, you will more than likely receive a "Counter-offer/Bank Addendum" that will include legal language dictating the terms of the sale. If you have any questions at all or don't understand something, it is in your best interest to spend the time (and money) to have a real estate lawyer look it over.
If you are financing the purchase, make sure you have your financing in place and let your mortgage lender (or broker) know that you have contracted to purchase a bank-owned property. Unlike a short sale, there will be a definitive closing date set and the bank will hold you to that date. If the closing does not occur when it is supposed to, there is a strong possibility that a penalty amount will be accrued daily for each day the closing is delayed.
Auctions
If you decide to forego the traditional sales route and try your hand at purchasing a bank owned property at auction, you will be waiving all of the inspections mentioned above. In fact, once you have "won" an auction of a bank owned property, you will immediately meet with a bank representative and an title representative in order to begin the process. In a regular "sale", there is generally a 7-10 day inspection period that is given in order to perform any and all inspections, including appraisals. With an auction purchase, you are waiving your right to the inspection period. This means that if you should find leaks, mold, termites or any other type of problem with the property, it's your problem to deal with. Generally a home in this situation is held open for at least 2 weekends prior to the auction date. If you are considering bidding for one (or more) of these homes, make sure you do your due diligence BEFORE the auction occurs. Visually inspect the property. If you see areas that you think may be a problem, make sure to notate it somewhere and get an idea of how much the repair will cost. There are many deals to be had by purchasing a home at auction, but there are just as many pitfalls to the unwary and uneducated buyer. Each auction has their own rules that you will need to abide by (items such as how much it will cost to participate in the auction, what type of a transaction fee will be charged, etc). If you are uncomfortable participating in an auction without representation, there are experienced agents who will be happy to assist you. Generally, they are paid a small commission by the participating bank for their services.
