With over 40% of Phoenix real estate sales still being foreclosures, buyers are jumping in like there’s no tomorrow, often times throwing caution to the wind because they got such a great deal and beat out other bidders. However, just because the bank accepted your offer doesn’t mean it’s going to be smooth sailing, nor should you go in unprepared as to what to expect.
Here is what to watch for when buying a foreclosure:
1. AS-IS is not necessarily AS-IS
When buying a foreclosures there are disclaimers everywhere that the bank won’t do any repairs. In some instances they can be negotiated however. Take for instance FHA appraisals that require the home be deemed “livable”. If a home is not livable a buyer cannot get financing.
My sister recently bought a home. The FHA appraiser called out a roof leak, no dishwasher, and termite present. She had no money to do these items, so we asked the seller to do them. They did.
2. Inspection period may start sooner than you think
Some banks start your inspection period upon verbal acceptance, NOT when they sign the contract and send it back, which could take days or even a week or two. Get those inspections started right away, because when the inspection period ends (usually 10 days) your earnest money becomes non-refundable.
3. Buying a Fannie Mae or Freddie Mac home?
Expect the 1st 15 days the home is on the market that it will only sell to an owner-occupant, defined as someone who will live there 12 months out of the year. Why? Because they are encouraging owners that live there as a way of bringing back values.
4. Expect to put up your best offer
In the Phoenix market we are seeing multiple offers on homes once again, this time instead of prices being at the top, they are at the bottom. As such, inventory is down, sales are up, therefore many people will be vying for the same homes.
A savvy buyer’s agent will ask probing questions of the listing agent in an attempt to help you put your best foot forward without overpaying for that home.
5. Financing contingency nixed?
Some banks (mainly Fannie Mae) will put into their addendums that your financing contingency expires before the close of escrow, usually a week or so. What does that mean to you? You need to have a fully-approved loan by this time, otherwise you may jeopardize your earnest money deposit. Loans declined a few days before closing could end up costing you your good-faith deposit.
6. Banks are looking for the highest net offer (pretty much)
Are you a cash buyer and think your offer has more weight than a higher financed offer? Not necessarily. Banks are looking for the most money being put back into their pockets, and will frequently take a chance on a financed offer. Remember to also strengthen up your terms to put the icing on the cake (high earnest money deposit, fast close of escrow, minimal closing costs requested,etc)
7. Just because home is being sold AS-IS doesn’t mean you don’t get an inspection
This is a big mistake people make. Why not invest $350 to make sure you know exactly what you are getting into? Isn’t the biggest investment you’ll ever make worth that? Enough said.
8. For investors
Don’t plan on the bank paying any closing costs or a home warranty. And, if they do pay closing costs and you are financing with a conventional loan, your lender will only allow up to 2% closing cost contribution from the seller.
9. For cash buyers
Expect your earnest money deposit to be 10% of purchase price, not the typical 1% that is normally offered on a home. The bank deems you to be more serious because you don’t have a financing or appraisal contingency.
10. Stay on your mortgage lender
The mortgage lender needs to have your closing documents at the title company a full 3 business days prior to the close of escrow. With foreclosures having them sooner is more helpful because banks are slow in reviewing the settlement statement. Not adhering to this can jeopardize your earnest money deposit, although most banks are fairly easy to work with and may grant at least one extension.