We’ve heard the horror stories about buying bank-owned homes: smelly carpets, moldy basements, infestations, bad plumbing–because these homes are bought “as-is”, their problems become yours!
But what about the financing side of bank-owned homes? Did you know that bank-owned homes are at a huge disadvantage when it comes to financing and escrow? Here’s why:
Six Reasons Bank-owned Homes Are a Financing Nightmare
Reason No. 1: Bank-owned homes are typically “as-is.” Because bank-owned homes and foreclosures are “as-is”, there’s no guarantee of the condition of the home, so therefore the home could have negative equity from the get-go, which makes it a credit risk in the bank’s eyes.
Reason No. 2: The process is more complicated. Bank-owned homes require more knowledge and paperwork than a traditional sale, so it will require you, and your realtor, to be well-versed in the bank-owned buying process.
Reason No. 3: Bank-owned homes have little–if any–Seller Disclosures. When you buy a home from a regular seller, that seller knows the history of that home, and is required to report it in the Seller Disclosures. This gives the buyer the opportunity to learn of defects not revealed during the home inspection. When you buy a bank-owned home, you are buying the home with unknown factors and very little recourse.
Reason No. 4: Bank-owned homes take longer to close. In today’s market, many REO agents are handed a huge volume of listings to work with. They often work for an asset manager who in turn works for the bank. Due to volume of inventory, and a complicated chain of command, it can take weeks to get a response from the bank on an offer, and 90 days to close a deal, compared to the standard 24-48 hour offer expiration and 30-45 day escrow typical on a traditional property.
Reason No. 5: Contract negotiations usually favor the bank. When the bank does accept an offer, it often generates a bank addendum that, for all practical purposes, pretty much replaces the offer you submitted, and all the buyer protections are generally replaced and/or altered. It is important that your realtor is well-versed in your protections, and it is recommended that you have a real estate lawyer look over the contract, which can be an additional expense.
Reason No. 6: The Broker or Agent may have to take a smaller commission on a bank-owned home. With bank-owned homes, there is usually a contingency attached to the listing stating that the listing price may be insufficient to cover all encumbrances, including the agent’s commission. Because these homes are generally more work, for potentially less commission, you may have a realtor that is not fully-committed to you and the property.
At the end of the day, when you buy a bank-owned home, you are putting a lot of extra work and effort towards a time-consuming deal that may not work in your favor. Due to mixed markets, there are many new and traditional homes that could end up costing a lot less in the long run, and remove the “headache” from the buying process. Not to mention that builders like Hayden Homes have a variety of financing programs such as $2000 towards closing, free appraisals, and competitive lending rates. To start building your new home today, check out our Home Builder tool and request information.