In David Letterman fashion… here are our Top 10 Things To Know When Making an Offer on REO Properties in Indiana and Florida.
10. Cash or Financed?
Cash will almost always rule for one of these properties unless the purchaser is considered to be offering dirty money. Dirty money means (for those of you new to this game) that it probably was not obtained using legal methods.
Forget about it. You write a bunch of contingencies into your offer and you might as well start looking for something in the traditional market. The only common contingencies that do get accepted, when no better offers are available, involve successfully completing financing or an inspection within a very limited time line.
8. Inspection Days
While we are on contingencies, lets look at Inspection Days. Don’t expect a bank to give you any more than five calendar days.
7. Per Diems
Don’t let your agent tell you these do not get enforced. They DO get enforced and many an unhappy buyer has incurred an extra $750 in per diem charges because nobody on his team realized that banks do enforce these penalties for not closing on the contract date. Typically these charges may run as high as $150/day. If your agent tells you to not worry about these, I would tell the agent to not worry about you as a client anymore either.
6. Home Warranties
Unless the bank has a program where they are offering one to a buyer, don’t clutter up your deal by requesting one. If you want a home warranty, pay for it yourself outside of the deal. By the way-ask your agent to rebate part of their fee for the warranty if they sell it directly to you!
If a property goes to auction, it may not be the best deal anymore. You may lose the opportunity to buy the property as inexpensively once an auction starts. Beware the auction company premiums because sometimes you will pay an extra 5% straight to the auctioneer.
4. Earnest Money
Earnest money is negotiable but if you are serious about securing a property, don’t spend a lot of energy bucking what the bank is telling you they need to have. Remember, they have something you want and this is a term they expect to set. Often, cash offers require a 10% escrow. Plan for $1000 on most properties. Sometimes properties under $50,000 can be secured for $500, but I would not plan for that.
3. Closing Dates
Closing dates need to be sooner than later. The best idea is to set the date as 30 days from contract acceptance. Don’t worry, if the bank needs more time, they will get it. If you need more time, please refer back to #7 on per diems. Why push the closing date and run this risk?
2. Days On Market
Look at how long a property has been on the market (Days on Market). If it has been listed in the last 30 days, you are not going to get a big discount so if that is what you want, don’t waste a lot of people’s time on an offer. It won’t happen, no matter how much factual documentation you have that the property is over priced. The opportunity to potentially buy at a significant discount to list comes when an REO is aged. By that I mean over 90 days on the market.
1. Finally (drum roll please) AS-IS means AS-IS!
It’s really very simple. Bank properties are sold as-is. Your offer should provide you time for whatever inspection is needed. But be warned, due to the high number of offers being made by investors who have never stepped into the home, and who then plan to inspect it and cancel the contract within the inspection period, the game is changing. These folks have caused the banks to stop being willing to even allow inspection contingencies forcing you to figure out if you wish to make an offer by actually inspecting the home. Imagine that? AS-IS means AS-IS! I think someday I will create a Bank Asset Manager doll that you pull a cord and this is what they say!