Pitfalls of Foreclosures. Disadvantages of REOs for Buyers - Sussex County NJ perspective

Part 6 of Distressed Properties are NOT Black Holes!, a six part series by Sussex County NJ real estate pro, Irene Kennedy

REOs do present some challenges that may or may not occur in other types of real estate sales. I'll provide the most common issues I encounter around Sussex County, NJ - and bet my colleagues will add lots of other snafus!

Unknown conditions. The bank has no history on the property. It does not know if there is an old oil tank buried. The age of the roof is a mystery. Most banks have not even had one of their own employees visit the property. The BPO and photos are normally the basis and extent of the bank's knowledge. I've never had a bank hire a home inspector to do a more thorough job. So, yes, there is more risk for a buyer. This is true not just for foreclosures in Sussex County NJ!

Speed. Bank's love contracts that call for a closing in 30 days or less. They don't like to hear 90 days, 60 days. I did have one agree to a 45-day window but it actually closed earlier than that. Most banks specify that the buyer pays $XX per day for each day the closing is delayed - for any reason other than the bank extending.

Unusual Aspects.

• Shifting costs: In my primary real estate area within Sussex County, sellers normally pay for water/well testing, a Certificate of Occupancy and some other low-cost items. With REOs, the cost and responsibility is often shifted to the buyer.
• AS-IS: Means exactly that; what you see is what you get. What you don't see is also what you get. The bank will not do or discount the price toward repairs; these are taken into account with the list price.
• Disclosures: There will not be a Seller's Disclosure because the bank has no historic knowledge; what you see is what you get.
• Home Inspection Timing: Some banks insist any home inspections be done prior to submitting an offer. Many buyers refuse to pay for a home inspection before knowing if the seller (the bank) will accept their offer. For my most recent closing of one of my REOs in Sussex County, I had a terrible time as buyers walked away and put in offers on places where inspection followed a contract. Only a licensed general contractor who was not going to do a home inspection at any point submitted an offer (lowball). I eventually persuaded the bank to permit a home inspection within 5 days of an accepted offer. I contacted every agent and the buyers to whom I had showed the home - and the offers came rolling in.

Even though the bank will not do anything based on the inspector's report, I still highly recommend all home buyers in Sussex County NJ do a full home inspection on an REO property. Regardless of its timing, this is a sound investment and might uncover some non-visible problems. The home inspector said the place needs a new roof? Based on the big blue plastic tarp nailed onto the roof over the hole that opens into the living room where the tree fell, I'd vote that a new roof comes as no surprise... All buyers should have an expert opinion on the condition of the property they are considering, just to know fully what they are getting and to decide if they really wish to proceed with the purchase based on all facts.

Fully Executed Contract. Deal is done. Banks very rarely change any terms once that contract is ratified. Do not expect concessions afterwards. If something really surprising pops up, such as a very high radon reading, it probably wouldn't hurt to ask for a modest adjustment, but I've not yet had a bank agree.

Repairs. AS-IS really means as-is. If the property had no toilet when it was listed and when you saw it, the bank will not be buying a new toilet. For the REO I mentioned in the above paragraph, when the first offer was accepted, the buyer promptly did a home inspection. Based on that, he came back with "must fix" items or dollar equivalent and the bank politely said go fly a kite. That listing, the buyer, his agent, and the fully-executed contract itself had been clear about As-Is and most of the items were quite apparent with the naked eye.

Negotiations. No face-to-face chats. When I represent the buyers of Sussex County homes for sale, I often ask the listing agent if he or she can arrange to have us sit down together with the sellers to present my buyers' offer and to negotiate a deal. (Buyers not present but "on standby" via phone.) This isn't a possibility when the bank owns the property. Furthermore, the bank does not give a hoot that Sally & Jim look forward to raising their growing family in this home. The bank doesn't care of the local chapter of the Hell's Angels is purchasing the REO. The bank cares about the bottom line and the speed of the closing. The listing agent prepares a "net sheet," preliminary HUD-1 or similar form to show how much money the bank will net, based on the offer presented.

• Part 1 - Distressed Properties are NOT Black Holes!
• Part 2 - Short Sales can be a great thing despite Timeframe & Lowballs
• Part 3 - So You Want a Foreclosure: Bank-owned Properties - REOs
• Part 4 - Want to Steal a Foreclosure? Get the REO facts.
• Part 5 - Consider a Foreclosure - Advantages of REOs
• Part 6 - Pitfalls of Foreclosures. Disadvantages of REOs for Buyers

Copyright © 2009, Irene Kennedy, all rights reserved. This blog post from RealtorIrene.com represents Irene's personal musings.

Considering selling a home or looking to buy one around Sussex County, NJ? Benefit from creative marketing, top negotiating skills and vast real estate knowledge by contacting Irene via the data to the right or HomesIrene.com.

Irene Kennedy, who is a NJ real estate agent with Weichert, Realtors, lives in Sussex County & works from the Hamburg office. Her primary market includes: Augusta, Branchville, Crystal Springs, Frankford, Franklin, Hamburg, Hampton, Hardyston, Highland Lakes, Lake Mohawk, Newton, Ogdensburg, Scenic Lakes, Sparta, Stockholm, Sussex, Vernon, Wantage.