THE HOME-BUYING PROCESS
Finding The Perfect Home
Writing An Offer
What To Expect While In Escrow
Considering A Short Sale
Buying a Bank-Owned Or Foreclosure Property
Finding The Perfect Home
Buying a new house can be an exciting adventure, whether it is your first home or a new investment property. There are a few considerations to take into account when buying a new house which can make the process easier and more enjoyable for you, especially if you are a first time home buyer. Whether you are searching for a home for the rest of your life, or for a quick investment property, there are basic rules of thumb to abide by.
One of the first things to think about when buying a new house is whether or not you can afford it. Assess your income honestly and take advantage of online mortgage calculators, to figure out how much money you can borrow to purchase a home. Remember that the more you put down, the more favorable the terms of the mortgage will be, and do not be afraid to consult several banks for the best rate. Once you have determined your budget, it is time to contact your Team Heidel agent so you can start looking for homes!
MAKE A WISH-LIST
Before searching for a new home, it is advisable to make a ‘wish list’ – a catalogue of the items that must be in or around the new house and the neighborhood it is in.
Considerations might include the following:
What style of house would I prefer?
Do I care how old the house is?
Where would I like the house to be located?
Is accessibility to major travel routes important?
What do I want my home to be close to?
How much space do I need and why?
How many rooms do I need?
Which is more critical: location or size?
Would I be interested in a fixer-upper?
How important is home value appreciation?
Is neighborhood stability a priority?
Would I be interested in a condo?
What features and amenities do I want? Which do I really need?
Which considerations are most important to me?
CONSIDER THE NEIGHBORHOOD
The quality of the neighborhood is vitally important when looking at buying a new house, especially if the buyer has or wishes to raise a family.
There are many factors to look at when moving to a new neighborhood:
Schools. Check the location, vicinity and quality of schools in the area. Check past and present exam results and audit reports.
Crime. Statistics are readily available to thoroughly review and check crime levels.
Construction. Check that there are no imminent plans for commercial or industrial construction in the local area.
Community. Endeavour to find out what amenities and entertainment there is in the area for the community and whether there are any Neighborhood Watch programs in progress.
Shops. Does the town center have good shopping facilities? Are there any supermarkets nearby?
Noise and Traffic. Be sure to visit at various times during the day to assess the level of traffic and noise. It may be that the road is often bustling with cars in the morning or evening, or that children from a local school make a lot of noise at playtime.
IDENTIFY COSTS ASSOCIATED WITH HOMEOWNERSHIP
Moving into a new home is an exciting process, but there are many costs to consider:
Mortgage payments. This is the largest home-based outlay in the majority of cases, and any buyer should ensure that they can repay their loan.
Homeowner's insurance (also known as hazard insurance). Home is where your heart is – along with a healthy chunk of your net worth. Your house is one of your most important investments, so be sure to protect it with a homeowner’s insurance policy. You will be required to have homeowner's insurance until your mortgage is paid off (you'll probably want it, anyway). Many insurance companies will give you a discount if you insure multiple assets with them (car, home, health insurance), so we suggest getting a quote from the company that provides your car insurance. It's good to get a couple of quotes. Please consult our Favorites List for preferred insurance providers! Your homeowner's insurance fee is often collected as part of your monthly house payment.
Utility Bills. If possible, it is a good idea to ask to see copies of recent utility bills. Take into account gas, electric, water, trash, and sewer bills.
Here is an overview of the breakdown for Las Vegas homebuyers:
1. Earnest Money. This comprises 1-1 ½% of the purchase price. This money is typically applied towards either your down payment or closing costs. It must be submitted with your initial offer on a home.
2. Home Inspection. This will cost between $300-$500, depending on the square footage, whether or not the home has a pool, and possible additional tests – like a pest inspection.
3. Home Appraisal. You can negotiate for this $400-$550 to be reimbursed by the seller, but it will always be an upfront, out-of-pocket expense.
4. Loan Application/Credit Check. This amount varies by lender, but most will do it for "free" upfront as they try to earn business and then it may be rolled into the closing costs - you'll see it on the HUD-1 Settlement Statement.
5. Termite/Pest Inspection. This $45-$75 is optional in many cases, but recommended, and sometimes required, by certain lenders.
Once the home has been inspected, appraised and approved by the lender, there are costs at closing. Closing costs are in two fee categories—Closing Costs and Prepaid Items.
1. Closing Costs. This includes the loan origination fee (usually1% of the purchase price), title examination, title insurance, and other miscellaneous fees.
2. Prepaid Fees. This includes the costs to set up your escrow account with the lender, as well as hazard insurance (1 year in full upfront), property taxes (pro-rated, based on the time of year you purchase), and homeowner’s association dues. Depending on the time of year, the lender may require from 3-13 months of reserves in the escrow account, so if you didn’t pay your mortgage, they would still be able to insure the home and pay the property taxes. It is important to double-check with your lender to see what to expect, as there can be a sizable difference in required funds.
NOTE: Typically, the closing costs and prepaid items add up to 3-4% of the purchase price. If you do a government-backed loan, they tend to be higher. The lower the price point, the higher the percentage within this range because certain costs within the process are fixed while other components are tied to the value of the home sale.
When you negotiate your offer on the home, you can also ask that the seller pay a portion of the closing costs and pre-paid items. The percentages vary depending on which banks will allow the seller to pay on the type of loan. Sellers are no longer allowed to give down-payment assistance through programs like Nehemiah or AmeriDream, but they can pay up to 3% on certain loans - usually conventional. For FHA you can go higher - possibly 6%, but you need to negotiate that with the seller.
Other things to consider are how much you might need to spend for appliances that may or may not be included in the purchase of the new home (refrigerator, washer/dryer, microwave, stove, and/or dishwasher), but these vary from house to house and depend on the seller's situation.
Writing An Offer
First time home buyers might feel better to know that they're not the only ones who feel confused about the home buying process. Nearly all home buyers feel the same way, even if they've bought a house in the past. It's easy to forget the steps you took to get into a home once the event is behind you. Don’t worry—Team Heidel is here to help!
Once you find the home you want to buy, the next step is to write an offer. Your offer is the first step toward negotiating a sales contract with the seller. Since this is just the beginning of negotiations, you should put yourself in the seller’s shoes and imagine his or her reaction to everything you include. Your goal is to get what you want, and imagining the seller’s reactions will help you attain that goal.
The offer is much more complicated than simply coming up with a price and saying, "This is what I’ll pay." Because of the huge dollar amounts involved, especially in today’s litigious society, both you and the seller want to build in protections and contingencies to protect your investment and limit your risk.
In an offer to purchase real estate, you include not only the price you are willing to pay, but other details of the purchase as well. This includes how you intend to finance the home, your down payment, who pays what closing costs, what inspections are performed, timetables, whether personal property is included in the purchase, terms of cancellation, any repairs you want performed, which professional services will be used, when you get physical possession of the property, and how to settle disputes should they occur.
WHAT ITEMS DO I NEED TO PRESENT WITH MY OFFER?
Lender Pre-Approval Letter. This letter states that a lender has verified your credit and income, and can therefore assure that you will be able to get a loan up to a certain amount.
Earnest Money Check. Earnest money is money you put up to show your intent to buy the property. When making an offer, your agent will provide the sellers with a copy of your earnest money check; once your offer is accepted, the check will be deposited into escrow.
Proof of Funds. If the purchase is cash, a proof of funds (POF) will be required - a proof of funds is a statement by a bank or financial institution that a depositor has a certain amount on deposit.
WHAT HAPPENS AFTER THE OFFER IS WRITTEN?
Your Team Heidel agent will submit the offer to the listing agent who will present it to the seller. Response time is generally 5-7 business for banks and 2-5 days for a “real” person. The seller can accept, counter, or reject an offer.
What To Expect While In Escrow
Here are the steps to getting the keys to your new home!
1. Buyer’s Remorse. Expect it—everyone gets it—then get over it! You’ve spent months of looking, writing offers, getting beat out, writing more offers, and on and on. You’re where you want to be! Let’s get the escrow closed!
2. Go into escrow/under contract and open an escrow account. Now that you and the seller have agreed upon terms and have signed a mutually acceptable purchase agreement, Team Heidel will arrange for your earnest money check to be delivered and deposited into an escrow account at the escrow company specified in the purchase agreement.
The escrow company acts as a neutral third party to collect the required funds and documents involved in the closing process, from the initial earnest money deposit to the loan documents to the signed deed. Keep in mind that if the contract is cancelled, the escrow officer must receive mutual agreement from both buyer and seller before earnest money can be returned.
3. Await the bank's appraisal. The bank providing the mortgage will do its own appraisal of the property (which the buyer usually pays for) to protect its financial interests in case it needs to foreclose on the property. If the appraisal comes in lower than the offered price, the lender will not give you financing unless you are willing to come up with cash for the difference or the seller lowers the price to the appraised amount, or some compromise in-between.
If you want to try to change the appraiser’s mind, you can try one of the following options:
provide additional information on why you believe the home should be appraised at a higher amount
get a second appraisal
try going with another lender and hope that lender's appraisal comes out in your favor
If none of these options is possible, you will be able to cancel the purchase contract.
4. Loan Approval. We will send a copy of the fully executed contract to your lender. As soon as possible after agreement, meet with your lender so he or she can proceed with the loan process. Loan approval has the longest lead time in the escrow process, so it is important that you get on this as soon as possible to avoid any delays. Your lender will schedule an appraisal to ensure that the purchase price is supported, which is necessary for loan approval. You will also want to get homeowner’s insurance.
5. Obtain the Necessary Inspections. You aren't required to obtain a home inspection when you purchase a home, but it's in your best interest to do so! For a few hundred dollars, a professional home inspector will tell you if there are any dangerous or costly defects in the home. If there are, you'll want to know about them so you can back out of the purchase, ask the seller to fix them, or ask the seller to lower the price so you can handle the repairs yourself. You may choose to get a Pest Inspection as well. In fact, if you are getting a VA loan, your lender will require it. Note that you cannot negotiate any seller concessions if the contract says you will purchase the property "as is".
Team Heidel will schedule any desired inspections. The buyer is responsible for paying for inspections. Most companies take cash or a personal check, and some will accept a credit card. The buyer is free to choose the inspector, and we are also happy to provide a list of preferred inspectors along with their fees, if you like. You will receive reports of any inspections via email, with detailed inspector comments and photos. You are welcome to be present at the inspection, and most inspectors welcome any questions you might have. The inspection is an important contingency to make sure the property is in acceptable condition. Read the report thoroughly!
6. Review the Seller’s Disclosures. Your Team Heidel agent will receive required disclosures about the property, such as the Seller’s Real Property Disclosure (SRPD), and any additional disclosures requested in the contract, from your seller, usually within 5 days of agreement. Through these disclosures, the seller must reveal any material facts that might influence your decision to purchase the property. Be advised, when buying a bank-owned home, customary disclosures are typically not provided. The bank will require a notarized waver from the buyer (which releases them from the responsibility of providing disclosures required by NRS 113).
7. Negotiate repairs. Should any of the inspections reveal items needing repair, you may ask the seller to address them through a “Request for Repairs” form provided by your agent, depending on the terms of the contract. In the case of bank-owned properties, the property is being sold ‘as is’ and the bank will not make ‘cosmetic repairs’. Customarily, repairs are completed on appraisal condition items only. The same is generally true regarding short sale properties as the property is being sold ‘as is’.
8. Homeowner’s Association. If your home happens to be in a Common Interest Community, the seller must provide an informational package, ordered from the company managing the HOA. Nevada law provides five calendar days for the buyer to review the package and cancel the contract if the informational package does not meet the buyer’s approval.
9. Contingency Removal. Once the loan is approved, the appraisal comes in at value, and all inspections and disclosures have been reviewed, it is time to close the escrow. At this point your earnest money deposit is now committed to the contract, and the seller has a right to pursue this money should you cancel the contract.
10. Signing Appointment. The loan documents are prepared by the lender and emailed to the title company. Your agent will coordinate with the title company to schedule a signing appointment at a time convenient for everyone. Bring two forms ID (driver’s license, passport, etc). At the signing appointment, you will be provided with wiring instructions for the closing funds. Since the Good Funds Law was passed in October 2009, most title companies request a wire transfer for the closing funds (down payment and closing costs). A cashier’s check can hold up a closing for days, as it must clear prior to the close of escrow. A personal check will cause even longer delays. A wire is most conducive to a timely closing. The amount of the closing funds will be given to you by the escrow officer. The seller will set a separate appointment to sign their necessary closing documents.
11. Do a Final Walkthrough. It's a good idea to re-inspect the property just before closing to make sure that no new damage has occurred and that the seller has left you items specified in the purchase agreement, such as appliances or fixtures. At this point in the process, you probably won't be able to back out unless the home has sustained serious damage.
12. Utilities. Make sure to contact the appropriate utility companies to schedule utilities to be transferred over into your name. If you order utilities on a day or so before close of escrow, and the seller orders them turned off, it is usually a seamless transition.
13. Closing. A few days after signing, depending upon the lender and title company and their schedules, your loan will be funded and the deed will be recorded at the Clark County Recorder’s Office.
14. It’s all yours! Your Team Heidel Realtor will meet you to hand over the keys to your new home!
Remember that you don’t have to do all this alone! Team Heidel will guide you every step of the way. We will keep you on track with the timelines of the contract, and protect your interests throughout the process. Nothing ever goes completely as planned, so your agent and the other professionals on our team will help navigate any pitfalls and get the transaction back on track.
ENSURING THINGS RUN SMOOTHLY ONCE YOUR OFFER HAS BEEN ACCEPTED
Here are five tips that every seller should know while preparing for a trouble-free escrow process:
1. Select Team Heidel to represent you!
2. Be responsive. The escrow officer may periodically contact you requesting pertinent information. In order to make the process go smoothly, respond as quickly as possible.
3. Be prompt. You will be required to meet with an escrow officer when it is time to sign the closing documents. Remember: all persons on title will need to sign the closing documents.
4. Walk-throughs. The buyer is entitled to walk through the property a few days prior to close of escrow with check list to make sure all is as it was when the agreement was made to purchase and if applicable, to confirm any agreed-upon repairs have been completed.
5. Documents. To expedite the escrow closing, bring the following items with you to your appointment:
Driver’s license or passport (photo ID).
The name and address of your homeowners insurance agent.
Many people are involved in most real estate transactions. It takes cooperation and communication between all of these entities to ensure a smooth escrow close. A positive outlook and a quick response will speed up the process and help you get into your new home sooner!
WHAT YOU SHOULD KNOW ABOUT THE HOME INSPECTION
Ensure that the following is carried out to avoid any future upset:
Get a full inspection. This is especially important if the property is old, and therefore subjected to the decay that time brings. A full inspection will cost money, but can save thousands of dollars in the future by identifying flaws and faults. It is an important contingency.
Read the report thoroughly. Many mortgage companies will send their own surveyors to the property for a basic inspection. Read their report thoroughly to ensure all potential issues are noted and committed to memory. If you do not approve the report, you may negotiate with the sellers on which repairs should be performed and who should pay for those repairs. Otherwise, you can cancel the purchase without penalty, provided you have included timetables in your offer.
Speak to the seller. Hopefully, those selling the property will be open and honest as to any problems they have encountered with the house or the local area.
Considering A Short Sale
WHAT IS A SHORT SALE?
A short sale is a process where a mortgage lender allows a homeowner to sell a home for less than they owe on the mortgage. It is often used to help both the borrower and the lender avoid a foreclosure process. A short sale occurs when a seller owes more than the fair market value of the home, faces a demonstrable financial hardship, and needs the seller’s lender(s) approval to close escrow. The goal here is to get an offer on the home as quickly as possible, which is why short sales are typically priced below market value. Short sales are becoming increasingly common in the Las Vegas Valley.
IS BUYING A SHORT SALE RIGHT FOR YOU?
That depends on how long you’re willing to wait. You could save a lot of money through this process, because short sales home prices are competitive with bank-owned property pricing. But you’ll have to wait longer than you would in a regular transaction. Buying a short sale takes longer than a standard real estate transaction because the bank is part of the approval process. With that being said, the savings often make up for the wait.
Lenders are flooded with many short sale requests - multiply that by the amount of paperwork required to process and approve a short sale and you have a backlog. No one, including the Brokers and Agents involved in the transactions can control the seller’s lender’s approval.
Most lenders are working hard to improve their handling of short sale offers, and to turn them around faster. But you should still prepare for the worst—a process that could take anywhere from three months on the short end to six months on the long end.
WHY PURSUE A SHORT SALE?
If you have the time to spare (short sales can take up to three to six months), a short sale can save you a substantial amount of money; money you can invest in anything from decorative pink lawn flamingos to Gaga-themed housewarming parties! Another potential benefit is that the home may be in better condition than a bank-owned property because the seller is often maintaining it. This is not always the case, sometimes people have transferred for a job, or simply run out of funds to keep the utilities on, etc.
HOW LONG DOES THE SHORT SALE PROCESS TAKE?
It depends on the seller’s lender’s workload and requirements. Buyers who submit an offer on a short sale must be prepared to wait at least three to six months for the seller’s lender(s) to approve the transaction. Remember that after the seller’s lender(s) approves the transaction, other contingencies may have to be met (home inspections, buyer’s loan qualifications) before the transaction actually closes. The seller’s lender(s) approval is only one piece of the puzzle.
The seller will initially accept, reject, or counter any offer to purchase the property. The seller is still the owner of record, even if payments have been missed, and is free to make all decisions regarding the terms of the property's sale. Once the terms of the contract have been agreed upon, the paperwork is submitted to the lien holder(s). All terms and conditions of the offer are subject to the lien holder(s) approval.
Properties listed in the Multiple Listing Service (MLS) will be placed in “Contingent” status, meaning that a purchase agreement has been executed, but the deal is awaiting short sale approval. As a practical matter, listings that are in contingent status come up in property searches, and it is possible that another buyer will see the house and make an offer. The seller’s agent will be required by Nevada law to present other offers, but any subsequent offers will be considered back-up offers only.
WHY DOES BUYING A SHORT SALE TAKE SO LONG?
Anyone thinking of buying a short sale home needs to a) understand the process and b) have a lot of patience. You might be one of those lucky people who zips right through the process with no delays. But in reality, you’ll probably find that it takes longer to buy.
This is because there is a complicated approval process. When a homeowner sells a home in the traditional manner (for more than they owe), the mortgage lender knows they will be paid in full. The mortgage lender’s approval is not needed—as long as they get their money, they’re happy.
But in the short sale process, the home is typically sold for less than the borrower owes. So the lender will need to approve the sale. And this is where the process can slow to a crawl. They might accept your offer, or they might make a counteroffer. Every bank has its own policies and procedures, and they may not always seem logical or reasonable.
A lot of buyers also complain that they’re left in the dark during this time, without being given any information until the acceptance or counteroffer comes back. There is just not a lot to report during this part of the process.
WHY IS IT SO COMPETITIVE FOR BUYERS?
The answer is that 68% of distress sales are receiving multiple offers. This is especially true in the affordable home range. Here are some strategies for your offer to make its way to the top of the pile.
1. Give the listing agent a reasonable amount of time to get the short sale accomplished (90-120 days).
2. Ask your lender about the possibility of submitting FULL loan approval with your offer. Your offer will have a huge advantage over others because it shows that financing will not be an issue in closing the transaction.
3. Ask your lender to contact the listing agent on each offer you submit. A good lender will communicate the highlights of you as the borrower and instill confidence about closing on time.
4. Keep the offer as ‘clean’ as possible. There are some items lien holders customarily will not pay, such as home warranties, repairs, appraisals and HOA Capital Contribution fees.
5. Communicate to the seller, through your agent, that you are a committed buyer and will stay the course through the short sale approval process.
WHEN DOES MY DUE DILIGENCE PERIOD BEGIN?
Customarily, the due diligence period (the investigation period for inspections, appraisal, etc), does not begin until we have Written Short Sale approval from the lien holder. Thus, the buyer will not incur out-of-pocket expenses until the short sale has officially been approved.
Any buyer for any property should be willing to pay for all relevant and necessary inspections and appraisals of the property, and have a pre-closing walk-through contingency as part of the sales agreement.
You should consider making any offer subject to the existing lender’s acceptance to include not only a general home inspection contingency, but also, where applicable, satisfactory inspection reports for lead-based paint, pest-insect report, septic/sewer inspection, well water and seller (conditions) disclosures. All of these contingencies should in in addition to the typical mortgage, appraisal and title contingencies.
HOW SHOULD A BUYER NEGOTIATE WITH A LENDER ON A SHORT SALE?
The lender typically is not subject to property condition disclosures and the seller, given his or her financial situation, may not be a viable party regarding future recourse, so buyers, especially with certain types of homes (e.g., age and condition), should most definitely include disclosure concerns as they prepare and present their offer to the lender and as an overall part of their overall negotiating strategy.
WHY DO LENDERS ELECT TO APPROVE A SHORT SALE VS. FORECLOSURE?
Lenders often favor short sale resolutions because they are not in the business of, nor do they have expertise, regarding, managing or owning properties. Moreover, short sales are typically less expensive for the lender than the foreclosure process.
WHAT CAN I DO TO ENSURE THE BANK’S ACCEPTANCE OF MY OFFER?
From the lender's perspective, the greatest qualities of the short sale resolution are closure and finality. By accepting your offer, even if the price is lower than market value, due to the situation, the lender can close the file and move on. To best ensure a smooth transaction, do not muddy the waters with contingencies and time frames inconsistent with conventional closing times. Once the offer is accepted, anticipate that the lender will want to close within 30 days. Consider including language in your proposal and contract that provides the lender with the time they need to review the offer and reach a decision. Then include an iron-clad means of closing (i.e., paying for the property on your part). When you remove obstacles in any real estate transaction, you pave the way to a smoother closing.
Buying A Bank-Owned Or Foreclosure Property
In today's market, nearly four out of every five homes sold are bank-owned foreclosure properties. These are commonly referred to as Real Estate Owned (REO) properties
Buying an REO property is very different than a traditional buyer/seller transaction. The process is much more taxing and several more entities are involved in the REO transaction. This can create more time and challenges.
Many REO homebuyers, especially those buying a home for the first time or buying their first bank-owned property, get frustrated during the process.
Since the REO phenomenon started dominating sales, not coincidently, customer service scores in title, escrow, lending and real estate have plummeted.
However, buying an REO is a great way to save money and get a fantastic deal. Just be prepared for the uniqueness of the process.
WHAT IS AN REO OR BANK-OWNED PROPERTY?
A property acquired in foreclosure and now owned by the bank that foreclosed on the property is called an REO or bank-owned property.
HOW DID THIS PROPERTY BECOME AN REO?
The last owner of this home was not able to keep up with the mortgage payments, the mortgage note holder seized the property and evicted the owner, and the bank attempted to auction the property and pay off the existing liens and mortgages. If that was not successful, the bank was then deeded the property by the Trustee. It has become an REO property.
WOULD YOU BENEFIT MORE FROM BUYING AN REO PROPERTY OR A SHORT SALE PROPERTY?
There is no general rule that can, with any degree of certainty, state which category of real estate buying results in a more favorable outcome for a buyer. It is important, however, that buyers understand that lenders are extremely motivated to sell when they own the property (REO). As a buyer, it is also easier to identify the true condition of an REO as the property should be vacant.
Banks do not want to own properties and have a great incentive to get properties off their books. Short sales offer many advantages as well; but again, it is very difficult for anyone to categorically assert that either foreclosures or short sales represent the best opportunity for a buyer.
HOW DO BANKS SELL REO PROPERTIES?
The banks are not in the real estate holding business so they must sell these homes and turn them into cash. Because most foreclosed properties are not successful at auction, REO properties have flooded the market.
In any market, if there is oversupply, the property values depreciate. Because of the depreciated market, the banks are going to take, in most cases, a substantial loss on the property.
The banks have independent, professional real estate agents that assist them is marketing and selling their REO inventory. The banks also assign asset managers who work closely with these agents.
HOW DO BANKS PRICE THEIR REO PROPERTIES?
When a bank takes over a property, they conduct their own due diligence to get an accurate idea of the value of the home. They hire a team of people to assess the current market value of the property through Real Estate Broker Price Opinions (BPO) and, in some cases, full property appraisals. Based on these findings, they typically price the home within 10% of the current market value. There are always exceptions.
Banks are in business to make money. If they cannot make money, they need to minimize their losses. Banks are looking for a certain "net amount" on each particular property. This "net amount" is based on their research of the current market value minus costs associated with the property. They have priced the home to sell quickly but as close to market price as possible.
Many buyers make the mistake of thinking the bank is desperate to get rid of the property. They believe they can submit a low-ball offer and expect to get an acceptance or at least a counter-offer. Think again! Low-ball offers (below 10% of list price) are not typically taken seriously. They may be a waste of your time and your agent's. Worse yet, you may be perceived as an illegitimate buyer. Banks own many homes in the same area, and they use many of the same agents, so this could adversely affect future offers you make on other properties owned by the same bank or listed with the same agents.
Be reasonable. Do your research with your Team Heidel agent and determine what the home is really worth. Make your offer according to the home's value, not the list price.
There are stories of buyers making tons of offers and not having a single one accepted. By making offers based on the home's true value and not what it's listed for, you can mostly avoid this challenge.
HOW DO I FIND AN REO PROPERTY?
There are thousands of REO properties in our market. There is only one way to effectively research them all in a timely manner...hire a professional real estate agent. The seller, upon the successful completion of the transaction, typically pays for the buyer's agent commission. This will cost you nothing, but may save you tens of thousands.
ARE REO PROPERTIES DAMAGED?
Some are. Many are not. It is important to inspect the home yourself before making an offer. Once you have viewed the property, consult with your lender about the damage the home has, if any.
It is equally important to have a professional home inspector inspect the property before you commit to purchasing it. Your agent will refer you to a top quality home inspector. When the inspection is complete, your lender will likely want to review a copy of it. They do this to protect you and their loan collateral, your new home.
Many loan programs will require repairs to be completed before you close escrow. If you do not have the money to do this and the selling bank is not willing to make these repairs, you may need to find another home.
WHAT DOES “AS IS” MEAN?
Nearly every bank-owned property today is sold "as is." You will have to sign a waiver that states you are willing to accept the home in the condition it's in with no further repair.
If a bank is marketing their home "as is", there is a possibility that the home needs repair and they are not willing to make them. Have your Real Estate Professional give you a thorough run down on what "as is" means to you during a transaction and once you have closed on the property. In addition, consult with your lender before making an offer on an "as is" home. Not all loan programs will allow you to buy a home that needs substantial repairs.
WHAT DO I NEED TO DO TO GET PRE-QUALIFIED TO BUY AN REO PROPERTY?
If you make an offer on a bank-owned property, they may require you to be pre-qualified with a home loan consultant from their own bank. They do this for two reasons; assurances and opportunities.
They want assurances that you are truly qualified to make an offer. While you may be pre-qualified by another lender, they will still want to review your credit, income and asset scenario in their own systems to make sure they are selling the home to a truly qualified buyer.
It is not negotiable in most cases and most banks will not consider your offer without a pre-qualification letter from their own institution.
It is legal for them to do this. However, you are not required to use this bank for your new mortgage loan; you just need to be pre-qualified through them. You can use whichever lender you choose for your actual purchase.
If you don't want to be pre-qualified through numerous lenders, you may want to reconsider making offers on bank-owned properties or ask your agent to narrow your search to banks without this requirement.
The banks also want to create a business relationship opportunity with you, as well as your agent.
Do not let this mandatory pre-qualification discourage you. This is truly in your best interest. Many times, the Home Loan Consultants from these banks have been authorized to offer steep discounts and other incentives if you proceed with a loan from their bank. It certainly doesn't hurt to have multiple lenders competing for your business.
In many cases, the bank is taking heavy losses on the property. If they can recapture the mortgage loan, at least it is not a complete loss. This creates an opportunity to parlay the great deal you got on the home with a great deal on your mortgage as well.
I AM PRE-QUALIFIED AND READY TO MAKE AN OFFER. WHAT’S NEXT?
Your offer is submitted to the listing agent. The listing agent may have to submit to the Asset Manager, who works for the bank, and this is where the negotiation happens. It may take a few days for a response. Be patient. Do not bother writing in a short deadline for the seller to respond. They may not pay attention to it.
The bank could respond in as quickly as 48 hours, but most banks take 5-7 business days. Once again, be patient. This is not your regular seller.
You will not get a response over the weekend or holidays. All offers submitted over the weekend will be presented the following business day.
As a rule of thumb, REO listing agents will tell you if you make an offer and do not hear back within five business days, the offer has been rejected. Do not wait around for the rejection or the counter. It may never come. Come back with a better offer or find another property.
WHAT DOES MY “HIGHEST AND BEST OFFER” MEAN?
Because the homes are priced so well, it is very common for the bank to get multiple offers.
If the bank gets multiple offers, instead of making a counter proposal to you, they may go back to all of the potential buyers and ask for each buyer's highest and best offer. This means come back with your best offer, as the bank will choose one at this point. In many cases, the bank will not return counter-offers after they have requested this.
If you are presented with this opportunity, it means you are in the running. You now have one more opportunity to increase the price or better the terms of your offer. You can choose to do nothing at this point but it may not get you anywhere.
Meet with your Team Heidel agent, determine the true value of the home, and review your down payment, closing costs needs, and loan terms. Then decide how much you like the property and come back with your best shot.
I MADE A LIST PRICE OFFER, BUT THE BANK DIDN’T RESPOND. WHY?
Many REO properties, especially those listed below market value receive multiple offers. Some houses sell above list price. The bank is like any other seller in the market. They can choose not to accept your offer if one comes in they think is better than yours.
If you offer list price and ask for your closing costs to be paid and another buyer offers list price and doesn't seek closing costs, the other buyer's offer is stronger.
HOW LONG WILL IT TAKE TO COMPLETE MY TRANSACTION AND MOVE IN?
Traditionally, buyer and seller contracts are 30 days. However, this is not a traditional buyer/seller transaction. In today's REO property market, many buyers feel more comfortable with 45-day closings. If you are getting a VA or an FHA loan, plan on 45 days. If you are paying cash or getting a conventional loan, thirty days is often feasible. Many banks have late fees of $100 or more per day past the contracted close of escrow date. These fees add up quickly so it is important to understand what problems can arise that may make you late.
WHAT CAN DELAY THE TRANSACTION’S CLOSING?
Aside from the regular loan process, which sometimes takes longer in today's stricter lending environment, there are many challenges unique to REO properties.
When the previous owner of your new home was foreclosed on and the bank took possession, a "Trustee's Deed" was issued in the bank's name. If this process is not executed properly, it may cause delays when the county is trying to record the deed into your name. There is little that you can do about this except wait until it is corrected. We have seen this issue take between one day and seven weeks to resolve. Still, this is a rare occurrence. Most deeds are transferred with no issues.
If a Home Owner's Association (HOA) manages the community, your title company will request an HOA demand on the property. This demand will ensure that the bank pays any association fees and fines at close of escrow. If they are not paid at closing, they will transfer with the property into your name and will then be your responsibility.
It's pretty likely that there hasn't been an actual person living in this home for a while. This means the home has not been kept. There may be a lot of fines (landscaping, upkeep, trash, etc.) levied from the HOA.
This can take time and be complicated but is necessary that it is done and done correctly. For more details, ask your escrow officer. It's their responsibility to get this resolved.
For the most part, if the close of escrow is delayed by problems that are out of your control, the bank should not penalize you. Just be sure to do your part in a timely manner, and you should be fine!
WHAT IF I FIND THAT REPAIRS NEED TO BE MADE ON THE HOME?
Many people that have lost their homes to foreclosure have been struggling financially. This usually means the home has not been kept properly and is in need of repairs and general maintenance. Some homeowners, once they know they are losing their home, damage the property purposely.
When buying an REO property, you must be prepared to do some repairs. Banks may not agree to make these repairs. They may not pay for these repairs. This may require out-of-pocket expense for you.
They may be willing to help with some, but don't plan on it. Know what you are buying before you make your offer and be prepared to spend some money for repairs before you move in.
In most contracts, you can back out of the purchase if you find problems with the property or in loan qualifying in a certain time period. This is called the due-diligence period.
Make sure you know how long this due diligence period is when entering into a contract. Complete all inspections within that period so you can make an informed decision on whether or not to proceed with the purchase. It is important to respect these deadlines because they are strictly enforced.
Some repairs will be obvious when you visit the property. Others may be identified during the property inspection and the appraisal process. The inspector will identify repairs issues. In some cases, an appraiser may also call for repairs to the property to bring it up to livable or safe condition. Banks will not do cosmetic repairs, but they are often willing to consider repairs noted as a condition of the appraisal.
Identify these issues quickly so you know what you are facing and have the opportunity to cancel if necessary. Again, this will help protect your deposit money.
You will want to be cautious buying a bank-owned property if you barely have enough money for the down payment and closing costs unless you have arranged for repairs with the seller.
I HAVE SIGNED MY LOAN DOCS AND I AM STILL WAITING FOR KEYS. WHAT’S TAKING SO LONG?
Just like you executed many documents at your loan signing, the seller has a stack of closing documents to sign as well. Remember, the seller of your home is a bank or some other financial institution. It may take the representative who is authorized to sign off on these documents days or even weeks to get around to it. Although it is customary for the bank to request 48 hours for this final step, your trusted and skilled escrow officer will make sure to stay on this for you. So, there you have it. Complicated? Yes. Frustrating? Sometimes. Time-consuming? Quite often.
At the end of the day, hopefully, you are getting a new home for you and/or your family at a much-discounted price so it will all be worth it.
The best tip we can give you is to remain positive and be patient. Expect the challenges. There will likely be some. However, with your representatives at Team Heidel and an experienced escrow officer, you can get through it successfully!