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Question: how to make an offer on a foreclosure?

Posted by bluemoon28 (My Page) on
Tue, Jan 27, 09 at 19:02

I found a foreclosed house that I really like and I want to make an offer on it. I don't have a real estate agent, and I'm wondering if I have to hire one to make an offer to the bank, or if there's a less pricey alternative. I hate to pay commission to an agent at this point, but I don't really know how else I would make an offer. Can someone help me with the ins and outs of making an offer on a foreclosure? Thanks in advance.


Follow-Up Postings:

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RE: Question: how to make an offer on a foreclosure?

Is the house listed with an agent? If so, the seller (bank) will be paying the commission.


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RE: Question: how to make an offer on a foreclosure?

Make sure you don't forget the "Contingent on inspection" clause!


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RE: Question: how to make an offer on a foreclosure?

"Make sure you don't forget the "Contingent on inspection" clause!"

Depending on how long the bank has held the property it may not have any utilities turned on.
They will NOT turn them on for an inspection, so you are left without any real way to check wiring, heating/cooling, and plumbing systems.

All that can be done is an abbreviated inspection to look for major damage and problems.

The bank typically will not make any repairs, and does not have to even sign a sellers disclosure in most states (they have no knowledge of defects to report anyway).

Make sure you have enough money available to handle problems that may crop up after the purchase.

Depending on the exact reason for the foreclosure the house may be in good shape, or could be damaged (even stripped).


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RE: Question: how to make an offer on a foreclosure?

You could just hire a real estate attorney to write the offer for you and then present it to the bank or if listed already with a realtor present it to the realtor who will then take it to the bank.


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RE: Question: how to make an offer on a foreclosure?

A few things I've learned in purchasing foreclosures here in the Twin Cities (I've purchased two):

- "Contingent on inspection" is a non-starter. The houses are sold as-is, and, as brickeyee pointed out, utilities frequently are turned off, with whatever attendant effects that may have. I had no problem bringing in my own home inspector, but the inspection could not be complete because utilities (in this case, water) were off. If you're "unlucky", previous residents or squatters have caused damage, too.

- Do not buy a foreclosure if you have a definite time when you need to be out of where you are now. One house I had under contract went almost seven months without closing (their problem, not mine) before I cancelled the contract. Good thing I didn't have to move out of my own house for that one. I've heard stories from reliable people about banks sitting on purchase offers for weeks/months. It's often been difficult to find someone who knows about this lone property hundreds of miles from the bank HQ. Some banks are just plain overwhelmed. Some just don't give a rip.

- Know the rules for the area in which you purchase the home. Some towns/cities/counties may require you to clear up outstanding assessments or pay for inspections or vacant-building fees. My city is making a lot of noise about requiring people buying vacant homes to bring them up to current code. I appreciate their intent, but, frankly, bringing many of the 75-to-100-year-old houses here back to an attractive livable condition and to current code just is not economically viable. You don't want to find that out after your offer is accepted.

I don't mean to seem unduly negative about buying foreclosures. There are some great bargains out there, or at least some decent housing at very good prices. But buying a foreclosure is not like buying an owner-occupied home. And even with the help of a buyer's agent, you're on your own for a lot of it. Know as much as you can and know when it's smart to walk away.


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RE: Question: how to make an offer on a foreclosure?

I helped a client buy a foreclosure last year. There was no inspection. Period. We also had to do a cash deal and offered the quickest close of the three other bidders. Fortunately, my client and his brothers are all in some form of a building trade (plumber, electrician, tile guy...) so he took them all through it first.
He closed in under a month on it. For many banks, the closing date is almost as important as the offering price. The sooner the better.
Good luck.
Jo


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RE: Question: how to make an offer on a foreclosure?

Thank you all very much for your input. I made an offer today. I wish I had read the advice about a quick closing date before I did, but oh well...Something to remember for the future anyway. The RE agent confirmed the bank pays his commission. The only worry is that one other offer has already been made on the place and it was the same amount I was planning to offer. I asked the agent to go three thousand higher, but he said most likely the bank would counter any offer I made and would of course try to drive the price up as high as possible with a bidding war.

One good thing: this bank is highly motivated to sell the property. My agent learned that they countered the other offer within 24 hours. One bad thing: If I'm bidding against a house flipper I can't compete because I know the house needs about 50,000 in repairs/remodeling and I'm no DIYer. A flipper can afford to go higher because he can do the work himself.

I did want to check one thing my agent told me. He said that I had to write a 500.00 check as a binder to a title company. He also said the title company would cash the check but I could get my money back if the sale didn't go through. This doesn't sound right to me. Why wouldn't they hold on to the check in case the sale DID go through, not vice versa? I didn't like that because although it's a reputable title company I feel the odds of getting money back once a check has been cashed are pretty low. Is this SOP?


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RE: Question: how to make an offer on a foreclosure?

Can you move your closing date? If you can, have your realtor call the banker and tell him of the better date. That might make all the difference. When I was submitting offers for my client, the bank called me by mistake looking for one of the other bidding agents (my cell, what an idiot). At that time, I asked him the status of my offer. He told me I was out. I hung up, called my client and drafted another offer with a better close. Submitted the offer again (even though I was "out") and got the house. Sorry, I don't know how the title company binder works. Didn't have to do it, or it was handled by the lawyers.

Keep after them. In foreclosure deals, conventional rules don't apply (but keep it honest and ethical).
Jo


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RE: Question: how to make an offer on a foreclosure?

The earnest money check is normal in my state with any real estate transaction. It is put in an escrow account until the contract is either canceled or consummated. If canceled both parties have to agree to the return of the money and sign off on it and if you go to closing you'll see a credit there for your earnest money.


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RE: Question: how to make an offer on a foreclosure?

Something I always insist on in any offer is a contingent walk-through inspection in the morning prior to closing. Obviously, I also insist on an afternoon closing. I do this for several reasons. One is to make sure the occupants are actually out. Another is to look for hidden damage, or damage that has occurred since the last time I looked at the property.

With a foreclosure, I would be concerned about vandalism and/or theft between the last showing and closing. If the seller would not agree to a contingent inspection just prior to closing, I would move on.

I would also change the locks immediately after the closing. It's likely that someone else still has keys to the property.


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RE: Question: how to make an offer on a foreclosure?

"If the seller would not agree to a contingent inspection just prior to closing, I would move on."

That is a walk through, not a "contingent inspection."

Its only purpose is to verify the condition is the same as when the contract was ratified.

Banks routinely change the locks immediately after a foreclosure.
Ask the bank and save some money.


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RE: Question: how to make an offer on a foreclosure?

Yes the common term is walk-through. Ask a lawyer what he would call it, though. For it to have any teeth, there has to be a contingency attached to it, unless you want to slug it out in court.

Its only purpose is to verify the condition is the same as when the contract was ratified.

Another important purpose is to verify the owner and/or tenants have vacated the property. If anyone hasn't and the property closes, a tenancy at sufferance is created. Then you have an unlawful detainer situation on your hands, which will take an attorney to clear up. Think time, money, and possible damages while all that drags out.


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RE: Question: how to make an offer on a foreclosure?

"For it to have any teeth, there has to be a contingency attached to it, unless you want to slug it out in court."

The "contingency attached" is that you will refuse to close.
Is is implicit without being stated.

The same of the seller has not moved out.
Refuse to close if they are in violation of the contract.

Many people will not use the leverage they have as buyers at the closing table to halt everything when needed (there are others who misuse it to extract additional concessions).


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RE: Question: how to make an offer on a foreclosure?

Just a note - HUD foreclosures, at least in my area, allow a turn-on for utilities for the inspection by an inspector, and of course the buyer may be present. HUD foreclosures have already vacated the homes, and HUD affiliated agents/companies show the homes during open houses. Offers may be withdrawn dependant upon the inspection results, but homes are sold as is. I have heard of good deals, but the bidding process helps elevate prices of desirable homes. Good luck, Bluemoon!!


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RE: Question: how to make an offer on a foreclosure?

Can you move your closing date? If you can, have your realtor call the banker and tell him of the better date.
Verbal changes mean nothing. By all means, if you can move the date up, fine. But until you amend the purchase offer/agreement, sign it, and submit it, the closing date originally written down stands.


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RE: Question: how to make an offer on a foreclosure?

Just to update...

The bidder who got in ahead of me walked away rather than counter the bank's offer. I think this taught them a lesson, so rather than counter my offer the bank came back and asked me to make my best offer. Because I'd had a contractor look at the house and he advised me on pricing I already had my top amount in mind. Apparently it was good enough because the bank accepted it. I now have 10 days to inspect and 10 days to arrange financing and we close in March.

I liked dealing with this bank. They were very straightforward and very fast with their feedback. I think my experience was not the typical one for people trying to buy foreclosures.

Thanks again to everyone here for all the great information.


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RE: Question: how to make an offer on a foreclosure?

"They were very straightforward and very fast with their feedback. I think my experience was not the typical one for people trying to buy foreclosures."

The ones I have purchased (dating back well before the present crisis) have always dragged on.

Banks want to diffuse responsibility, so they have a committee for everything.

The fastest one I can remember was about 12 weeks.
The slowest was well over a year.

Banks do not like to loose money (nobody does) but many are just incapable of moving faster to save their ongoing carrying costs.

I have been caught a few times over the years when repair and renovation took longer and was more expensive than estimated.
I generally had to resort to renting the house out and waiting for better market conditions. Covering a portion of carrying costs beats eating the whole cost.

Banks are simply not capable of handling leasing, maintenance, and all the other headaches of being a landlord.
They would rather bleed than try and mitigate the problem of REO.
After all, Uncle Sam will bail them out in the end.


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RE: Question: how to make an offer on a foreclosure?

Congratulations, bluemoon. I hope everything else in this transaction goes as smoothly. I had always heard that "banks don't want to be in the real-estate business", but the way most lenders handle their foreclosures really makes you wonder.


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