Buy Foreclosures Like A Pro #3 - Writing An Acceptable Offer

This is the third edition of the series on how to buy foreclosures, REO and bank-owned homes in Nashville like a Professional.   Although Nashville, Tennessee is my primary location, this valuable information will be helpful no matter where you live.  I will offer insight and share my experiences selling foreclosures in Nashville since 2005 .  Do not buy a foreclosure, short sale, rental or your next home without reading this series. 

Writing an acceptable offer can be tricky for foreclosures.  Each bank has their own set of rules on what terms are acceptable,  and the criteria differs with each lender.   This article was intended to give you information to avoid the common mistakes that apply to most lenders when writing an offer.  

Do not write an offer that is significantly less than the asking price, unless it is the true market value of the home.  This is a waste of time for everyone and it leaves the seller with a negative opinion.  Most foreclosures have had several valuations completed on them by appraisers and realtors; and the seller has a good idea of the current value of the home.  Most of my foreclosures sell within ten percent of the current sales price. 

Most lenders will not accept a Sale of Home Contingency for a foreclosure or a short sale.  If you have a home that you need to sell first, then it will be difficult to buy a foreclosure property until the sale has been completed.   If you are in this situation, I would recommend that you look at owner occupied homes or that you plan to have a short-term rental to move in until you can transition to your new home.   

Lenders will expect you to close on time and there are penalties if you cannot.  When writing your original offer, make sure that you include time in the closing date for contract negotiations and lender processing time.   It may take a week or more to negotiate a contract with a lender before it is accepted and executed.  Lenders typically have to get several levels of approval before they can accept an offer.  The lender may also have to get approval from the investors who own the securitized loan or the mortgage insurance company who is covering the loan.  Processing times have frequently changed in the last few years based on the sales volume, new government regulations and loan type.  It typically takes longer to close FHA loans than Conventional.  Some lenders can close a home in two weeks, while others take two months You will likely see a per diem listed in the seller's addendum to the sales contract.  This is the amount you will pay each day that the loan does not close beyond the approved closing date. The seller may even require additional earnest money or that the earnest money be made non-refundable if you cannot close on time.  Just make sure that you give everyone adequate time to close and you will avoid a lot of worries and headaches. 

Most lenders want to limit their participation in paying for costs that the buyer customarily pays.  Many will limit their closing costs paid to three percent of the sales price.  Many lenders will not make or allow any repairs to the property prior to closing.  Many will limit  the additional items they are willing to pay such as inspections, title insurance, home warranty and termite.   The best strategy is to keep you contract clean and avoid a long list of items that you would like the seller to pay in your offer.  The seller looks at the price and all of the terms in the purchase agreement when deciding whether to accept your offer. 

In addition to these strategies, I recommend that the buyer's agent contact the listing agent prior to submitting an offer.  Any additional information gleaned from the agent will only improve your chance of success.

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