REO Buyers: Get your Offer Accepted Part 2
Welcome back! This post is the second in a series of three posts regarding how to get your offer accepted by a bank if you are buying a foreclosure or REO property. So, besides coming across as a “normal” buyer with all intentions of really buying the house, increasing your good faith deposit, getting preapproved with a direct lender and offering over asking price, what more can you do?
Don’t Ask for Repairs
Nine times out of ten, banks will not make repairs or pay for repairs to a property listed as an REO. Actually, make that 9.9 times, a bank will not make or pay for repairs. It is so rare that if the bank is willing to do such a thing that fact will be spelled out in the marketing and become a selling point. This is why the property you are buying is priced so low. This does not preclude the fact that you will know about the repairs (some banks will already have a pest report for you to take a look at) but if you think the required repairs are a negotiating point, remember that the lenders have taken them into consideration when they listed the house. Also, if you ask the bank to make repairs, chances are your offer will likely get rejected in a multiple offer situation. That being said, do keep in mind that sometimes the banks are not right in pricing the home. Get your inspections done and weigh the repairs against the price. If you think the asking price is not worth the work, move on. There are plenty of homes to view.
Increase your Down Payment
With today’s FHA loans, it is possible for a home buyer to put just 3.5% down (with closing costs paid by the seller) and buy a house. However, if you can afford to pay your own closing costs, maybe take care of escrow costs by yourself or increase your down payment, your offer is sure to stand out from the rest. Some home buyers will even succesfully get their offer accepted at asking pricesimply by increasing their down payment. Or you can get your closing costs paid by the seller and use your cash as additional down. It’s up to you. Bottom line: see if you can find any more cash to use as down payment to bolster your offer and it will be taken more seriously by a bank.
Let the Bank Pick a Title Company
This is a small one, but it does cut out extra paperwork. Chances are the listing agent selling the REO has a preferred title company and that particular title company is well set up with all the details of dealing with that particular bank. If you pick your own title company (and, of course, that is your prerogative), you might get a counteroffer and you will need to rewrite your good faith check. It is sometimes simply easier to let the title company be the seller’s choice and make your good faith deposit out to a generic “Title Company.”
Shorten Escrow Time
This might not always be in your control, but it does help your offer if you can close the loan in 45 days or less. Timelines have gotten a little stretched lately since paperwork review has become more thorough in the lending industry, but anything over 45 minutes will probably merit a counter offer from the bank. Be careful, however. Writing a short timeline which you know to be unrealistic just to get the offer accepted could cost you. Most banks will have a counter that levies a pretty hefty fine on every day beyond agreed upon days to close - something like $50 per day or more. So make sure your lender is ready to perform on your shortened days in escrow.
Shorten or Clear Contigencies
The default contingency period on the California Purchase Agreement is 17 days. This means that if you do not write in a shorter contingency period for approving all documents and completing all inspections, you will have said that you want 17 days to do them. The bank will usually try to shorten these to 7 or 10 days. Why? Well, if the buyer does decide to walk away during the contingency period, the house has wasted less days on market. A good idea for a buyer at this point is to know that the bank will want to do that and shorten the contingency period himself. Better yet, it’s a good idea for the home buyer to get at least the home and roof inspection done before making an offer. However, be advised that if competition is stiff, this can get pretty expensive, (Home inspections cost approximately $350 - $500, pest inspections cost about $100 - $200 and roof inspections are usually free, certification and repairs on roofs cost money depending on how much work is involved) so only get inspections done before making an offer if you’re absolutely sure you are in love with the home.
If you keep these tips in mind when making an offer on an REO, you should be in pretty good shape. These are specific pointers to follow to get your offer accepted. For more general ideas, check back tomorrow for our last post in this series.
