There are a few different ways in which a buyer of Real Estate could obtain ownership of a foreclosure. Here is a quick summary of the three possible scenarios:
- A pre-foreclosure where you are able to buy directly from the home owner before the bank takes over. This is commonly referred to as a short sale.
- At an auction where you may be in competition with other buyers bidding on the home.
- From a Real Estate company or the bank itself. This is known as an REO transaction a.k.a (Real Estate owned).
Below is everything you need to consider about buying a bank owned home after a foreclosure.
The opportunity to buy a Massachusetts bank owned home is one that many buyers often consider due to the fact that there is a prevailing belief that you are able to purchase one for 50 cents on the dollar or less. More often than not many bank owned properties do represent a decent Real Estate value and sometimes a great deal! Do not expect to buy one for half off the market value though. You can sometimes but not always pay 5-20% less than the going rate for a similar comparable property.
Buying a foreclosed home however, is not for the timid at heart and there are many things that buyers need to be aware of going into a REO transaction.
Like any other transaction, you should investigate the present market value of the property. Do not blindly assume the list price is a fantastic deal. This is something a skilled local buyer’s agent can do to assist you.
A Realtor that knows the local inventory and recent sales data should be hired to help you with the transaction. While a banks goal is to get rid of their inventory as fast as they can, don’t expect the bank to consider silly low ball offers especially during the first few weeks the property is listed for sale.
In my experience while working as a Massachusetts Realtor for the past 24 years, I have never seen a bank accept an offer less than 10% under the asking price. In many cases the asking price has already been set aggressively to start. Like any seller, the banks goal is to maximize the price they get for a property.
What many buyers fail to understand is that banks have to demonstrate to shareholders, investors and auditors that they attempted to get the highest price possible.
After a home has been in the banks inventory for a while they do tend to become more aggressive with the price. A bank after all is not interested in being a home owner. Do not make the poor assumption however, that banks are desperate sellers and will do anything to clear out their inventory. This is rarely the case!
In order for a bank to consider accepting your offer you want to make sure you have been pre-approved by a lender. Most banks will not even consider your offer without proper financial documentation. If you happen to be making a cash offer with no financing contingency, the bank will want to see proof that you have the funds to purchase in an account somewhere.
Some banks may also ask you to get pre-approved through them as well, although it can not be a requirement to do so due to RESPA laws. RESPA stands for Real Estate Settlement Procedures Act and is designed to protect consumers.
Often times with a bank owned property you will need to have patients of a saint. In many cases the bank will take days to respond to your offer. Also remember that on weekends banks do not conduct business. The process can take even longer if you find yourself competing with multiple offers on the property.
When you buy a bank owned property be prepared to be buying it “AS IS”. Most banks will not make repairs to a property unless it would effect the buyers ability to finance the property. Some of the things that a bank may consider remedying could include:
- Termite or other insect problems.
- Mold issues.
- Plumbing or heating system issues.
- Electrical issues especially if it involves a safety hazard.
- Septic systems ~ some states require a passing inspection in order to close, including Massachusetts. See Massachusetts Title V
- Structural issues.
On many occasions I have seen banks not even consider fixing these types of issues. Every bank is different in how they operate and make decisions. Do not expect a bank to make small repairs. You may be able to possibly get a credit for some repairs at closing but do not expect it.
Most banks have their own contracts that they use. You will be expected to sign their standard form and in most cases you will not be able to make any changes to it! I have seen attorneys try and more often than not they are rebuffed.
Massachusetts is different than most states because we have a two part contract including an offer form and a purchase and sale agreement (P&S). The purchase and sale has the same general terms in the offer just spelled out in much greater detail. With a bank owned home you will just sign the banks form and that will be considered the Purchase and sale.
In most circumstances you will be given the opportunity to conduct inspections even though the property is being sold “as is”.
It is crucial that your Realtor makes sure that you have proper contingencies in place to inspect the property for such things as the structure, pests, mold, radon , water, and others.
You will want the right to terminate the contract if these do not meet local or national standards. Be aware that the bank is going to want these inspections to be done immediately and not the typical 7-10 day period of a standard sale.
Lastly, banks will prefer that the closing will take place quickly. You will not see the same flexibility that you could possibly get with some traditional home sellers. As a rule of thumb, most banks will want the closing to take place in 6 weeks or less.
One really important clause that you find in many bank owned contracts is the penalty if you do not close according to the stated contract date. In most cases there is a $100 dollar a day penalty for not closing on time! You better make sure your ducks are in order when buying a bank owned home.
There is no question that some bank owned properties can be exceptional values. Don’t overlook the fact that there is quite a bit to think about going in though. Having Real Estate professionals in your corner who can guide you and protect your interests is very important. I always recommend to my buyer clients that they use a good Real Estate attorney, especially when buying a bank owned home.
About the author: The above Real Estate information on buying a Massachusetts bank owned home was provided by Bill Gassett, a Nationally recognized leader in his field. Bill can be reached via email at firstname.lastname@example.org or by phone at 508-435-5356. Bill has helped people move in and out ofmany Metrowest towns for the last 24+ Years.
Thinking of selling your home? I have a passion for Real Estate and love to share my marketing expertise!
I service the following towns in Metrowest MA: Hopkinton, Milford, Upton, Southboro, Westboro, Ashland, Holliston, Mendon, Hopedale, Medway, Franklin, Framingham, Grafton, Northbridge, Shrewsbury, Northboro, Bellingham, Uxbridge, and Douglas.