What happens to a sales contract overall, if I (the seller) dont agree with the addendum of sale?

I think you are talking about an Amendment to the contract, not an Addendum. Addenda are usually included with the offer to purchase. Once the offer is accepted, the contract is changed via Amendment.

If a buyer submits to you an Amendment to the Offer to Purchase and you do not accept it, then the buyer has a couple choices. First, they can move on with the purchase as if the Amendment never existed. Second, they can submit to you another Amendment with terms you may find more favorable (you can also offer them a Counter-Amendment of your own). Lastly, they can send you a Cancellation and Mutual Release to back out of the deal.

As a Seller, you do not have to sign the Cancellation if you think that their reason for backing out is not provided for in the Offer. The discussion on this is a whole other blog post!

How often should our listing agent be in touch with us?

At MINIMUM an agent should contact you to set up showings (or let you know when one is scheduled if you have already moved out) and then to provide you feedback from the showings. If you are not getting many showings, the agent should at least touch base with you weekly, either a quick call or an email.

Your agent should also be watching your market and let you know about new listings, what other homes are getting offers and what homes have closed to help you price and market your home more effectively.

How do I know when my listing agent isn’t doing a good job for me?

There is no way to give a quantifiable answer to this question. My best answer is “you will know”. In fact, if you have to ask another agent this question, then you already know the answer!

When you first meet an agent, they should lay out what they do to market your home, to encourage buyers and their agents to bring an offer and also how they will stay in communication with you. This is also a good time to lay out your expectations of the agent.

How often should a listing agent follow up with showing agents?

Your listing agent should definitely follow up with every agent after every showing. If the showing agent doesn’t reply, your agent should hound them until they get feedback or a restraining order.

If a showing agent indicates their buyer has some interest, then your listing agent should keep in touch with that showing agent to try and prompt an offer. They shouldn’t hound them, but just stay in touch.

If you change your price or decide to offer incentives to either buyers, their agents or both then your listing agent should contact every agent who showed your property.

Lastly, if you decide to expire your listing with that agent and list with another, your old listing agent would be wise to stay in contact with the agents who showed your home while he had it listed. More on that in another blog post in the future.

Can a seller back out of a purchase agreement if the appraisal higher then selling price?

Buyers and sellers can do whatever they want in a transaction. It is just a matter of your return on the decision.

As a seller, it can be very frustrating to find out that your home appraised for more than the agreed upon selling price and I sure couldn’t blame you for wanting to back out of the offer. However, the contract is on the buyer’s side on this one.

Assuming that all other contingencies have cleared and the buyer has performed as expected per the contract, if the seller tries to back out because of a high appraisal, the buyer does not have to let you out of the deal and can sue you for what is called “Specific Performance” which is the legal way of saying they can force you, in court, to follow through with the offer and close. If the seller manages to prevail in the suit, they will definitely be out the attorney fees.

My question back would be if you do manage to break the contract, what next? Will you re-list at a higher price to reflect the appraisal? Know that the higher price will cause you to be on the market longer and could possibly wind up with you right back where you started – or even lower!

My advice to you is to be happy you sold your home in a tough market and enjoy your new home.

Our agent told us to not counter and accept the offer…why?

Because your agent is overstepping his or her bounds and likely putting their interests ahead of yours.

An agent’s job is not to tell you whether or not to accept an offer. An agents job is to give information and advice so that you, as the seller, can make the best decision possible for you and your family.

As a seller, do you think a home inspection done prior to the listing is a good idea?

Absolutely!

Doing an inspection prior to listing can give you a heads up to potential sticking points you may not find out about until you have a Notice of Defects in your hands and see your buyers off to the next house. Having a pre-listing inspection also shows you care about providing a good home to your buyers.

The downside of having the pre-listing inspection is that it may bring up defects that require disclosure on the condition report. If you choose to fix these issues, then you should have no problems.

Do incentives offered by sellers such as closing costs or gift certificates actual attract buyers?

As far as I know, no real estate sites offer an option to search by incentives offered, but they all do offer an option to search by price.

Buyers generally search for homes by location, number of bedrooms and baths and by price – some will get more specific, but the majority will use at least these criteria. When they input their range it is usually by multiples of $10,000 or $25,000. If your home is listed over their search range, you may never get on their radar, even if your incentives net your price within their parameters.

A home priced at $274,900 with no incentives will get more views and a quicker offer than a home priced at even $276,000 with $5,000 in incentives.

My advice to a seller would be to first get to or even under your markets closest $25,000 mark then think about incentives.

I have two CMA’s from different agent that are drastically different prices. Which agent is right?

“CMA’s” go by a couple different names, one being a “BPO” or “Broker’s Price Opinion”. The prices you get from different brokers are going to be as different as the brokers themselves.

You can pretty much separate brokers into two camps – listing buyers and listing sellers.

A listing buyer may give you a very inflated estimated listing price in hopes that you will think that he is a wonder agent and will get you a ton of money for your house. Sometimes they do while other times they will start campaigning for price reductions almost immediately.

A listing seller, on the other hand, will give you a lower price because his focus is to get your home sold quickly and the best way to do that is price it low. Your house will likely sell quicker than if you had listed with the listing buyer, but you may wind up selling your house for less than you could have otherwise.

Neither one is better than the other (however, I would argue that the guy giving you the low number is more brave than the guy giving you the high number). Both have the same motivation – to sell your house and get paid – they just have different ways of going about it.

Both agents should have provided you market data and should have also walked you through that data to justify their listing price. As the seller, your job is to look carefully at this data with the agent and ask questions. Look at the listings the agents present you and compare them objectively with yours – put yourself in a buyer’s shoes. Would you pay more or less for these other homes than you would for yours? A good agent will have shown you enough data that you can also come to an opinion.

My advice to you is to choose your agent based on everything BUT their list price since the list price is not their decision, it is yours. Some agents will walk away if your desired list price is too high, some will further counsel you as to why a lower price is better and may then either sign you up or pass on your listing and others will just sign you up and start campaigning for price reductions afterwards. It is up to you to make the decision on which scenario is best for you.

Can I cancel a residential purchase agreement if buyers do not remove the contingencies in a certain time frame?

The answer depends on which contingencies the buyers aren’t removing. When some contingencies aren’t met by the buyer, they just expire and things move on as if they never existed. Others require action and can cause a seller to cancel the purchase.

Contingencies that expire without consequence to the seller are the Home Inspection, Testing and Appraisal. They are worded to say that if the buyer does not act upon these contingencies by the given end date then things just move forward.

Contingencies whose expiration without action by the buyer can cause problems include the Deposit of Earnest Money, Loan Commitment and the Closing. If any of these pass unfulfilled by the buyer, the seller can cancel the offer at their discretion.

Other contingencies that may be added by the buyer and their agent are usually the second type. For example: “Buyer to provide loan commitment within 3 days of acceptance”. While this isn’t really the proper form for this contingency, it is assumed that if the buyer does not provide you the loan commitment you can cancel the deal.

Whether to cancel the deal or to try to keep moving forward with a buyer who missed their contingencies depends on the situation in your local market. If you have other buyers lining up for the house (or at least a bunch of good showings) then it may be wise to let the current buyer go. But, if the action on your house has not been so hot, then your best bet is to try and continue working with the bird in your hand.

Posted in: Sell Your Home
Tags: addenda, addendum, advice, amendment, cancellation, contingencies, follow up, home selling, listing agent, pre-listing home inspection, purchase agreement, Real estate, realtor, sales contract

Q: We are just starting the process of buying our 1st home. We we found a house we really liked and wanted to put an offer in on Friday (New Years Eve). She said it would just sit all weekend because of the holiday. Also she didn’t offer us any advice on strategy or how much to offer. When I said to my mother (in front of my agent), “If we run short on the closing costs, can you help us out?” my agent didn’t tell us that we could actually offer more money for the house and ask the seller to pay for the closing costs.

Also my agent asked me to get in touch with my lender and get a pre-approval letter for the EXACT amount of our offer, and have it reflect our FICO scores. My loan guy is pretty awesome, and even called me back on a Sunday night. The earliest he could get me that letter was Monday morning. That is pretty much a 1-day delay every time I want to put in an offer. Is there any way around having the exact dollar amount of your offer on the pre-approval letter?
By the way, my agent was wrong. Someone put an (accepted) offer in on the house that we wanted on Sunday night, before we could get to her office on Monday. I want to use this as a learning experience, since I’m heartbroken about missing that opportunity.

There are a lot of questions built into this one email. I’ll break down the answers by category.

Agent Duties

The duties an agent performs depends on your relationship with the agent. This does not mean whether you are friends or not. In real estate there are two types of relationship you can have with an agent: customer or client.

CUSTOMER RELATIONSHIP

This is the default relationship a buyer will have with an agent. When you walk into an open house, you are that agent’s customer. When you call the agent who’s name is on the sign, you are a customer. It is basically the same relationship you would have in any other retail situation such as buying a car. The agent is obligated to present the property in the best possible light and to sell it for as high a price as possible. However, unlike those situations, a Real Estate agent is bound by law to provide the following duties to all parties (customers and clients) of a real estate transaction:

• The duty to provide brokerage services to you fairly and honestly.
• The duty to exercise reasonable skill and care in providing brokerage services to you.
• The duty to provide you with accurate information about market conditions within a reasonable time if you request it, unless disclosure of the information is prohibited by law.
• The duty to disclose to you in writing certain material adverse facts about a property, unless disclosure of the information is prohibited by law.
  • Material Adverse Fact: A “material adverse fact” means an adverse fact that a party indicates is of such significance, or that is generally recognized by a competent licensee (real estate agent) as being of such significance to a reasonable party, that it affects or would affect the party’s decision to enter into a contract or agreement concerning a transaction or affects or would affect the party’s decision about the terms of such a contract or agreement. For example: The agent knows that the furnace regularly goes “boom” when it first fires up, he must disclose it to everyone regardless of the wishes of the seller.
• The duty to protect your confidentiality. Unless law requires it, the broker will not disclose your confidential information or the confidential information of other parties.
• The duty to safeguard trust funds and other property the broker holds.
• The duty, when negotiating, to present contract proposals in an objective and unbiased manner and disclose the advantages and disadvantages of the proposals.

In other words, the agent is supposed to treat you honestly, fairly and do his job to the best of his abilities according to your direction so long as it does not violate the law. An agent in a customer relationship is not allowed to give opinions or advice. So, if you ask them how much to offer, the answer should be “list price” or he will suggest that you decide that on your own. It would be wrong for the agent to tell a customer that even though the asking price is $299,000 the seller would take $275,000 unless specifically directed to do so by the seller.

With regards to the amount of the offer or how to structure it, the agent was doing her job correctly if you were her customer (in which case, she would be the “Selling Agent” and not a “Buyers Agent”), but the fact that she wanted to wait out the weekend did you (and her) a huge disservice as you found out.

CLIENT RELATIONSHIP

To have a client relationship with an agent requires having a signed contract (Buyer Agency or Listing Contract) with you. This allows the agent to provide you additional duties as listed below:

• The broker will provide, at your request, information and advice on real estate matters that affect your transaction, unless you release your broker from this duty.

The broker must provide you with all material facts affecting the transaction, not just adverse facts.

• The broker will fulfill the broker’s obligations under the agency agreement and fulfill your lawful requests that are within the scope of the agency agreement.
• The broker will negotiate for you, unless you release the broker from this duty.
• The broker will not place the broker’s interests ahead of your interests. The broker will not, unless required by law, give information or advice to other parties who are not the broker’s clients, if giving the information or advice is contrary to your interests.
• If you become involved in a transaction in which another party is also the broker’s client (a “multiple representation relationship” (a different blog post for a different time)), different duties may apply.

Note the use of the term “broker” as opposed to “agent”. All contracts are considered to be the property of the broker (in my case, all my contracts are owned by First Weber, I am just the agent for those contracts). Technically, if you have a Buyer Agency contract with me, then all agents within First Weber are required to treat you as a client (exceptions apply – again, another post). It is the same with listing contracts except that with a listing contract, you are the client of every agent unless that agent has a Buyer Agency contract with a buyer.

If the agent in the question was a Buyers Agent then she blew it big time. She is obligated under the contract to offer advice on price as well as how to structure the offer to your best advantage.

THE DIFFERENCE

When you walk into an open house or call the agent who’s name is on the sign you are a Customer to that agent. That is not necessarily a bad thing, but the old adage “buyer beware” kicks in. You have to know what questions to ask the agent and what information to request. If you are the client of the agent, they provide this to you as a matter of course. You have a very knowledgeable coach in your corner who can direct the transaction smoothly and hopefully save you some money as well.

Submitting A Pre-Approval Letter

There is nothing within the contract requiring that they be submitted with a pre-approval letter. But, some sellers, especially banks selling foreclosures, won’t even look at an offer without an accompanying pre-approval letter. Your agent should know this prior to writing an offer. Furthermore, your agent should have asked you for a pre-approval letter before writing an offer (not to mention you should have gotten one before going out home shopping!).

The advice your agent gave was good, get the pre-approval for the amount you are offering, especially if it is required that you submit it with the offer. It doesn’t always help your case when you are offering $175,000 on a house listed at $200,000 and giving a pre-approval for $200,000. However, this advice tells me she was working as a Buyers Agent.

In my practice I will submit an offer for a Buyer Client and write into the contract that the buyer is pre-approved and will submit proof within 3 days of the acceptance of the offer. This protects you from the above scenario plus can buy you some time over a holiday weekend, such as what happened to you. I would not ask for or supply to the seller your FICO scores. They are immaterial to the transaction unless you are asking the seller to finance a portion of the sale price.

Learning Experience

Not to be smart, but if you feel the need to contact another agent (or agents) about a transaction, then you are working with the wrong agent.

At the beginning of your buying process your first step should be to sit down with a mortgage person to find out home much you can afford. Once you know this, go to some open houses and talk to the agents – interview them, ask questions. Are they interested in you? Do they know their stuff? Would you feel comfortable with them representing you in the biggest transaction of your lifetime?

Other good sources for agents to interview would be your mortgage broker, friends and family.

Don’t start calling names off signs for private showings since the rules within the REALTOR community make it tough for one agent to represent you on a home that you were already through with a listing agent. Open houses are the exception to that. Use those to find a good agent then stick with him or her. Have them send you properties, set up private showings and write your offer.

Getting pre-approved and finding an agent to represent your interests before going house shopping will assure a smooth, stress-fee real estate transaction from the first introduction through the closing.

Posted in: Home Buying
Tags: advice, agent duties, buyer's agent, closing costs, customer relationship, Home Buying, money down, offer, open house, pre approval letter, Real estate, selling agent

Q: Our house has been on the market for 4 months with mild interest from buyers. However, there has been on couple that have been through the house SEVEN times (4 open houses and 3 private showings). What little feedback we get from them indicates they like the house but calls to the agent asking if there is a way we can make things work usually go unanswered. At this point we are almost ready to not let them see the house again. We’re sick of getting everyone loaded up in the car and driving around for an hour.

I bet these folks aren’t alone. There is an old adage in sales – “The hardest word in the English language is “YES”". Volumes have been written on getting people to say it. Each year sales professionals spend time and money going to seminars to learn how to coax it out of people. In a typical setting, like a store or car dealership, getting to “yes” is much easier than in real estate. In real estate there isn’t always direct contact between the seller (or seller’s agent) and the actual buyer. Usually there is another agent guarding the buyer’s door and you have to go through them. Some of these buyer agents can be easy to work with – they’ll relay everything the seller offers or asks to their clients. Some – too many – don’t. They’re busy with other things or, dare I say, lazy. Some view relaying this info to their buyers as hounding them, so they keep it to themselves.

The question here is, how do you get through the gatekeeper to the buyer? And, how do you know for sure that the buyers is getting all the information you are sending?

In a normal sales setting you could employ a method I call “Wouldya couldya.” It’s pretty easy and requires no salesmanship whatsoever. Someone expresses interest in an item and the “salesman” says something like “Wouldya buy it if…?” Insert a price, color, model etc after the if. Most common would be “Wouldya buy it if the price were right?” The two problems with this in a real estate transaction are the buyers agent and the fact that things discussed verbally aren’t worth the paper on which they’re written.

In the case where a buyer has been through multiple times and/or has expressed decent interest in the property, I would suggest to my sellers that they write an offer to the buyer.

At first the sellers usually object saying they don’t want to waste the time putting it in writing if the buyers are non-responsive verbally. Let me ask you this – what is an hour writing an offer compared to another month (or more!) on the market? Putting anything in writing makes it real – the buyer can look at it, hold it in their hands, it details every little item and contingency and gives them a lot of reasons to say yes. While it is easy to say “no” with their mouths, it is much harder to affix their initials on the line of the offer where it says “this offer is rejected.” To their minds, they aren’t just rejecting the offer, they are rejecting the house.

WRITING THE OFFER

Writing an offer to a buyer requires some thought on your bottom line price. What is the least amount you will accept for your home? The next step after this is deciding whether you want to put that price to the buyer or inflate it a little to leave room to negotiate. You can go either way here. Some sellers might be concerned that their offer gets countered by the buyer for a lower price. First, it is highly likely that they will and second, it is OK to repeatedly counter-offer at your original offer price. There are a variety of things in an offer on which you can negotiate.

After you have decided your terms, it is time to put them on paper. Your agent writes the offer the same as he or she would write any offer. There may be some terms you may not know – such as down payment amount, if they are taking conventional financing or FHA, a 15 year or a 30 year mortgage. Don’t worry about that, just put in some normal terms for your market (for instance, if your home falls into the first time buyer market, a 30 year FHA loan with 3.5% down is pretty typical). Once done, just sign the offer where it says “Seller” and send it over. Your buyers WILL see the offer. Agents are obligated to present every offer submitted to them, even if its something as unconventional as an offer written by a seller. If their agent refuses, your agent has the right to present it to the buyers himself. You are guaranteed the buyers will see it.

The reason why you can “fudge” a little on some of the terms of the offer is that the true goal of this is to start a conversation (or to stop the endless showings by buyers not willing to move forward). While a signed contract would be nice, a counter-offer back from the buyer is a definite win for you. If you’re a fisherman, you just set the hook. From here on out you negotiate the deal just like you would any other.

There is a lot of uncertainty in the market today and because of that, buyers are finding it harder and harder to say “yes” to a home they would otherwise jump at. Some of these truly can’t buy the house but the vast majority, in my opinion, can. By writing an offer to your buyers you are reaching out to them as if to say “we want you to own our house. Let us help you do that” and that can go a long way to some buyers. Seller’s in todays market have to be pro-active in every way possible. Marketing and pricing aggressively, repainting and staging the home are great ways to help get your home sold, but they are passive. Writing an offer to a buyer is a great way for a home seller to actively get their home sold.

Posted in: Sell Your Home
Tags: buyer's agent, First Weber, Home Buying, home selling, open houses, private showings, Real estate, real estate transaction, realtor, sales professionals, salesmanship

Jeff’s Note:

I almost didn’t post this article as I think it’s a load of hooey although there are some truths in it. In whatever you do, there are risks. Yes, if you own a home and lose your job or there is a devastating illness in the family you can lose the home – you can also get kicked out of your apartment under the same conditions.

I am often suspicious of articles and politicians who cite actual people (i.e. Sally Muckenfuch of Rancho Kukamunga says…), so, when I see Sally used, I tend to doubt the premise of the article. If they had hard facts, the writers would use them.

Finally, this quote is the biggest pile of baloney of them all:

““The average homeowner, however, consistently derives more pain, but no more joy, from a house and home,” Bucchianeri said.”

Why don’t I like it? Simply because I don’t think it is true. I think the average homeowner does derive joy from owning their home despite the struggle that it may have become. How do I know? I’m an average homeowner.

Now, to the article:

READ MORE

Posted in: Housing Market
Tags: american dream, apartment, federal reserve bank, homeownership, Real estate, struggle

Six questions to ask yourself prior to making an offer on a short sale property.

1. Are you very patient?

To get lender approval it can and does take about 2 months. If there are more than one lender or investor involved it can take up to 6 months or longer for approval. As a general rule understand that it takes a minimum of two months to hear back from the lender as to whether or not they will accept your offer.

2. Is your financing in order?

It is important to present your best foot forward. Most lenders want cash, so if your offer isn’t an all cash offer, make sure that you can show that you are qualified and that you have your financing in order. A real problem for some prospective homeowners is the fact that there should be no big purchases or even items bought on a credit card during the time between your pre-approval and the time that you close your transaction. These purchases can have an effect on your credit scores and can make or break the conditions of your pre-approval.

3. What are your time restrictions?

Again it can be months before you even hear back from the various Lenders and Investors. Can you realistically afford to wait 3 to 6 months before finding out if you have a deal and then an additional 30 to 60 days to close and begin the repairs needed to move into your new home?

4. Are you working with a qualified real estate professional?

Does your agent have any experience with short sales? Does your agent have any additional certifications or accreditations that set them apart as a short sale professional?

The National Association of REALTORS® provides the SFR designation.

5. Have you had a title officer do a search on the short sale property to see all the liens that are attached to the property?

If there are lien holders it’s harder to close the transaction. So you need to know exactly what the true status of the property is, prior to making an offer.

6. You do understand that Short Sales are ‘as is’ don’t you?

It is unlikely that you will get an allowance from the seller for the repirs that are most likely needed. I would recommend that you have the property inspected by a reputable company so that you know just what you are getting into. Remember, the seller is distressed and the last thing they will want to do is to make any repairs.

Short sales are a viable option for those who are patient, and willing to go through the process of making and waiting for a short sale offer to be accepted and to close. It’s important to not lose sight of your prospective when looking at short sales and REO’s.

Original Article

Posted in: Short Sales
Tags: credit scores, national association of realtors, pre approval, prospective homeowners, Real estate

Many real estate buyers enter into the world of home buying and selling without considering the very great material advantages there are to knowing what’s on the market, what’s selling, how long it took and for how much. By analyzing the data of comparable homes that have recently sold in the neighborhood, you can put yourself in a much better bargaining position.

You already know one price: the seller’s. However, you should not assume that you will have to pay that price until you compare similar homes and discover what they are really going for and why. You need to understand how the home condition, improvements and status of the market all combine to produce a reasonable price for that property at a particular time. In the end, a home is only worth what someone is willing to pay for it, but just because *you* aren’t willing to pay a particular price doesn’t mean that someone else won’t be happy with the price.

To compare homes, you need to find homes that have sold in the last few months that are in the neighborhood, have the same number of bedrooms and bathrooms and are roughly the same in square footage. You have to take into account garages, workshops, landscaping, etc. It can be difficult, which is why a Realtor ® is the best choice for people who want to make the best financial decision for themselves, but do not have the time or the inclination to do all this research.

READ MORE

Posted in: Home Buying
Tags: buying a home, financial decision, negotiations, Real estate, realtor, square footage

Posted in: Home Buying
Tags: Home Buying, house hunting, Real estate

You want to buy a foreclosure? Remember, there are both great opportunities and great pressures and pitfalls in this market.

First, you have to decide at what stage of foreclosure you want to buy. There are three options: 1. pre-foreclosure; 2. sheriff’s auction; 3. repossession, called REO (for real estate owned by the bank).

“The safest and best way to buy is when it’s a bank-owned property,” said Rick Sharga, a spokesman for RealtyTrac, the online marketer of foreclosure properties.

Pre-foreclosure: These homes are in the foreclosure process, but they have yet to be sent to auction. Owners are typically trying to unload them because they are “underwater,” owing more on the homes than they are worth.

As a result, potential buyers must negotiate a deal with the lender as well as the owner. That makes buying at this stage of foreclosure complicated and slow. But, you have the advantage of being able to inspect the home before purchase — which isn’t the case in other types of foreclosure sales. Sharga warned, however, that prices are usually higher than at other stages of foreclosure.

Sheriff’s auction: These sales yield the lowest prices, but they are fraught with difficulties. Often the house is unavailable for inspection, leaving buyers with a long list of expensive repairs — and much larger bill than they intended. This stage is usually best left to the professionals, the contractors and investors who regularly bid on these places and know what they’re doing.

Repossession: This occurs after the home has gone through a sheriff’s auction but does not sell and the bank gains possession of the property. Homebuyers may not get the best bargains during this stage, but they can nearly always perform a thorough inspection before closing, minimizing costly surprises. Plus, the property comes with a clear title.

In addition, the banks selling these places may extend preferential financing terms to the buyers and may have made some repairs before putting the property on the market.

Even in this safer stage, though, homes are still usually sold in “as is” condition. “That means the bank won’t pay for cosmetic issues,” said Adam Wiener, a spokesman for the Redfin, the online real estate marketer. “Although, they will often pay for some or all of repairs that are health and safety issues. That makes the home inspection even more critical.”

He also pointed out that, since you’re buying from a corporation, not an individual, the buying process can be faster, so be prepared to move quickly. Many times a listing goes on sale on a Friday and is sold over the weekend.

“The buyers and their agents need to be on top of everything from the inspection to the financing,” said Wiener. “Some banks will even charge a per diem fee for late closings.”

Once you’ve decided which type of home to buy, there are several common mistakes foreclosure buyers should take care to avoid. These include:

Getting caught up in a bidding frenzy: The banks often under-price repossessions, hoping to generate excitement, attract multiple bids and sell them quickly. The problem is, as in any auction-type sale, bidders get excited and pay too much.

“Remember,” said Sharga, “there are 800,000 REOs in the banks’ inventories. There’ll be another home to bid on tomorrow.”

Underestimating repair costs: Take full advantage of the home inspection and don’t delude yourself about much the repairs will cost.

“Take along someone who can give you a good estimate of how much repair costs will come to,” said Sharga.

Redfin coaches its agents to warn buyers to factor in a cushion of 10% to 20% of the purchase price to pay for unexpected repairs. “If you end up not using it, go on vacation after 6 months,” Wiener said.

Not knowing what comparable properties cost: This is important in any market but especially in this endeavor. In high foreclosure areas, prices can be eroding very quickly. You want to have the latest homes sale prices on repossessed properties and try to keep your bid comparable or lower.

Buying in a neighborhood flooded with foreclosures: This is most important for people buying for the short-term. Any neighborhood saturated with REOs and foreclosures may be headed for further price falls. If you’re planning to relocate within a few years or buying a bigger house, that could mean selling at a loss. A better bet, if you can find it, is to buy the only foreclosed home in an otherwise stable community. That’s more likely to hold its value.

Not having financing in place: If you don’t have a pre-approved mortgage, you’re really not in the market. “You have to be able to move quickly,” Sharga said.

Banks don’t want to dilly-dally on sales; they’re losing money every day that homes sit on the market. That means they’ll often jump on the highest bid with the best financing already in place.

Having a loan beforehand carries another advantage: It tells you how much credit you have available. You won’t spend time shopping for homes that are too expensive.

Remember that pre-approved financing is different from pre-qualified financing; it means the loan is ready to go. Pre-qualified is more like an opinion of a loan officer and there’s still work to be done before final approval.

Posted in: Foreclosure
Tags: auction, bank owned property, banks, foreclosure properties, foreclosure sales, Real estate