There is a big difference between purchasing a home from typical home seller and a bank (REO). When you are dealing with a home seller you often get to meet with someone face to face. You are dealing with a real person that has emotions and is capable of making decisions. When you are dealing with a bank you are not dealing with a real person. You are dealing with a group of people that have been designated to mitigate a company’s debt.
How does it work?
Large banks have departments set up to liquidate homes. These departments hire local REO real estate agents to list the foreclosed homes on multiple listing services. The local REO agents typically have little knowledge about the homes they are selling. The people making the decisions have never even seen the homes.
As a buyer of a bank owned home, you are going to receive very little information about the home you are purchasing. It will be your responsibility to learn everything about the home through your buyer’s agent. It is inherently important that you choose to work with a buyer’s agent that understands the process of working with a bank. It would be a risky decision to purchase a bank owned home without a knowledgeable local buyer’s agent.
The Process of Purchasing a Bank Owned Home
One of the major differences between purchasing a home directly through a seller and a bank is the length of time that it will take to do everything. When you write an offer on a bank owned property, your buyer’s agent will fax the offer to the listing agent. That listing agent will then upload the major details of the offer into an online program that the bank uses. The bank will not physically see your offer until later in the process. The bank will be very slow to respond to offers. It is likely that they will be countering the terms of several offers at the same time. Once the bank has verbally agreed upon terms with one of the buyers, they will fax over their legal addendum.
The legal addendum that the bank will require you to sign will be extremely one sided. The bank’s addendum will be written by their attorney and is a contract that is used on all purchase and sale agreements. Therefore the entire addendum will be nonnegotiable. The addendums vary between banks, but most contracts will have the same basic terms. Virtually all bank addendums will deny you the ability to sue them in the future for any reason. The addendum will also allow the bank to back out of the contract for any reason at any time.
Once you have agreed to all of the bank’s terms and signed off on their addendums, your buyer’s agent will return the signed addendums to the listing agent who will fax them to the bank’s REO department. Once the addendums have been reviewed, the bank will send the original purchase and sale agreement with the addendums to a senior manager in the department to sign everything. The bank will then fax the forms back to the listing agent who will fax them to your buyer’s agent. At this point you will have a binding purchase and sale agreement that you can provide to your lender to lock a loan rate and begin the financing portion of process.
From this point you will be on your own until closing. During this time period you will need to physically inspect the property, have the property appraised, and gather personal information for your lender. If everything goes as planned, you should be done with this part of the process in 3 to 4 weeks. Once everything is ready to go, your lender will order the final closing documents and settlement statement. You might end up waiting a few extra days to get the bank to sign the final closing documents, as the REO departments can be very inefficient.
The entire process of purchasing a bank owned property will probably take about two months. Once everything is done and you have the keys in your hand, your next step should be to change the locks and begin the clean up process.
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