Frisco TX Foreclosures: So You Wanna Buy A Good Deal?
Learn the Real Scoop When Buying a “Good” Deal
Part 2: What to Expect When Buying a Foreclosure?
Every home buyer wants to purchase a “good” deal. Naturally, they consider purchasing a bank-owned (or “Foreclosure”) property. Who would not want to purchase a property for less than market value to gain this instant equity? So, off we hop into my car with home buyers we go and visit these “good” foreclosure properties. Some notes to ponder when buying a foreclosure property from the bank:
Property As-Is Condition
Banks are not in the business of “fixing” houses. In a foreclosure situation, it is pretty much take it as it is. Saw some flaws in the walls? The carpet needs to be replaced? Missing door knobs? As a foreclosure home buyer, what you see is what you get. Unless it is something noted in the property appraisal that your loan cannot be approved, you can pretty much purchase the property in its as-is condition.
If you expect your home to be completely nice, clean, move-in ready, a foreclosure property may not be for you.
Utilities On/ Off
Some properties do not have utilities turned on. Some banks will have the utilities turned on during the inspection period. Some will NOT. As a home buyer, you must consider if this is something you want to consider. If the utilities will not be turned on for your inspection and the bank allows you to turn it on in your name, you must pay for the costs and deposits associated in setting up the account. It may cost between $300 – $400.
If money is not a problem and if you had negotiated a “good” price, you may want to consider having utilities on in your name temporarily for inspection.
There could still be risks associated with this issue, stay tuned for the next article in this article for the inherent risks to turning utilities in your name.
No Unrestricted Right/ Option Period
In a “regular” sale, home buyers can exercise their right to terminate a contract during the “Option” period here in Texas. In the “Option” period, the home buyer purchases a few days from the seller. During this time, the home buyer may send his/her home inspector into the property to inspect the property. How much (price) and how long are subject to negotiations and agreement between buyers and sellers. What the buyers bought is a time period for which gives him/ her the unrestricted right to terminate the contract for whatever reason, or no reason at all. The option fee may or may not be credited towards the purchase – subject to negotiations between the buyers and sellers.
In a “foreclosure” sale, more than likely, the bank does not give buyers the unrestricted right to terminate. Inspections at the expense of the buyers are recommended and buyers usually get 7 days to complete the inspection and repair negotiations thereof. The buyers may request for any repairs, and the bank will decide to fix, credit or not. If the bank agrees to accept the repair request, the sale of the property proceeds. If the bank disagree to comply, the buyers can decide to accept or reject. This is where it is not similar to a “regular” sale.
Bank addendums supersede sales contract
You should count on signing more contracts and addendums when you purchase a property from a bank as the Seller. These contracts and addendums are written by the bank’s attorneys and the language in which these contracts are written favors the Seller. If you do not understand these contracts or addendums, you should seek legal advice. It is almost always impossible to strike or counter any information on the addendums. Whenever there are conflicting information or statements on the contracts and addendums, the addendum takes precedence and shall prevail.
Special Warranty Deed
In a “regular” sale, home Sellers deliver a General Warranty Deed to the buyers. In a bank-owned sale, the Seller delivers a special warranty deed. The difference between a General and Special Warranty Deed is that in a General Warranty Deed, a Seller will warrant any prior problems with the title during the chain of ownership, not just during their ownership. A Special Warranty Deed is where the Seller will only warrant clean title during its ownership.
Limited Fees/ Closing Costs/ Seller Contributions
The bank sellers may agree to pay some of the closing costs as requested by Buyers. However, as specified in each individual addendum, some closing costs (which are allowed to be paid by “regular” sellers) now become null and void even if it was originally in the sales contract. What closing costs are to be paid by the Seller differs individually with each bank seller.
As part of the contract addendum, buyers have to sign waivers of all kinds such as: all rights to file or take action against seller for specific performance (selling the property), claims arising from calculating proration that may be discovered at or after closing. Each contract addendum and waivers are written differently.
Seller’s Sole Discretion
This term is used all over the addendum contract. Again, as a gentle reminder, this addendum that supersedes the sales contract in any discrepancy is written in the language to protect the Seller. Hence, the buyer takes on more responsibility on due diligence in obtaining the information he/she needs to complete the purchase of the property from a bank.
When repairs are negotiated and agreed to be completed by Sellers, the repairs are made only to the Seller’s satisfaction only. Sellers may not provide receipts and details or work repairs. Sellers also do not warrant or provide any guarantee for work performed.
Negotiations Hear Back
You should not and cannot count on hearing back in a timely manner from such sellers. After you submit an offer, or counter-offer, you may hear back in 3 hours, or it might take 3 weeks. These are not typical real estate negotiations and if you are looking to close and move quickly, foreclosure properties may not be for you. However, your replies back to the Seller should be quick and firm. Whenever you are considering the offer or counter-offer, when another offer comes along “better” than yours, the Bank seller is in no obligation to wait for your response. Yes, it is unfair but this is what you need to accept when you deal with bank foreclosures.
Per Diem Late Charges
Time is of an essence in a real estate contract; more so in this situation. If buyers cannot close as specified and agreed on the contract, buyers must pay a per diem late charge to the seller. The amount is specified in the addendum. Hence, it is important to put into consideration a realistic closing date to get your loan approved and in addition, pad the days for negotiations of the contract. You do not want to put the closing date too far into the future because if you are in multiple offer negotiations with other buyers, your contract may not be selected because it’s too late. The bank’s objectives are to sell the house as quickly as possible and for the most money.
Each sale by a different bank seller. Some addendums are made public prior to buyers signing the sales contract, while other addendums are only offered after the initial offer is submitted. Purchasing a foreclosed property sold by a bank is in some ways different from the regular customaries of our typical real estate transaction. Again, seek legal consultation if you are not sure about the documents you are about to sign.
The information listed above serves as a generalization. Again, know that every foreclosure sale is different. Consult with your real estate agent if you want to pursue this route. My advice for such sale is never go unrepresented.
Next, The Inherent Risks to Buying Foreclosures
View some pre-foreclosures/ short sales and banked-owned properties in Frisco, Plano and McKinney:
- When Foreclosures Hurt
- The Real Hard Truth about Homeownership
- Value Proposition of Your Realtor in Your New Frisco TX Home
- Top 10 Buyer’s Wish List in Frisco TX Homes
- Are You Ready for the Perfect Frisco TX storm?
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Copyright © 2009 by Loreena Yeo (3:16 team REALTY).
Originally Posted on Frisco-TX-Homes.com Frisco TX Foreclosures: What to expect when buying a foreclosure