REO’s or Bank Owned Properties are in abundance in Los Angeles and for that matter all over the nation right now, however is it really such a good idea to purchase a bank owned property?
They usually have very attractive price tags but buyer beware once you decide you want to put an offer in on that property the banks are playing hardball in their contracts.
Here are a few of the issues you may run into when purchasing a REO:
1. Buyer receives a lengthy complicated addendum of usually 8-30 pages that are often in contradiction to the offer.
2. Terms are often changed.
a. Contingency periods are often reduced.
b. Contingency removal is passive rather than active. Which means once you pass the contingency period timeframe you’re 3% deposit could be at risk.
c. Change of some costs- transfer taxes.
d. May need to be reviewed by your attorney.
e. You may end up being responsible for the costs of retrofitting, which traditionally the seller pays for, even if the contract says otherwise.
3. There are Fewer Disclosures Required.
a. Since the seller, the bank, never lived in the property, there are a number of disclosures not required. In a standard sale and short sale the sellers have to provide the buyers with a lot of disclosures providing details about the past and current condition of the home and any work/renovations they may have done.
b. This puts more responsibility on the buyer for inspecting. Which you should do regardless, however it’s much more reassuring seeing all the details about the condition and or defects that the seller discloses as well.
4. It’s usually priced lower making it a good deal which generally attracts multiple offers driving the price up. On top of that you’ll most likely be competing with investors who are paying all cash which is hard to compete against if you have to get a loan for the purchase.
5. The listing agent and the bank often are non-responsive. Questions and documents take time and you will need to have patience.
6. For every day past the loan contingency time period agreed upon in the offer or counters they often will charge a per diem, which can get quite expensive.
7. They are usually sold “as is” without repairs or credits being made for problems that are found, and will often not pay for termite repairs or if they do agree it’s just a small portion.
The long and the short of it is if you cannot accept the conditions of an REO transaction- RUN, don’t walk away from them!
All my best,
Keller Williams Realty
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