Every state has different real estate laws and procedures and this blog is written for Georgia’s procedures of purchasing AS IS short sale and foreclosure properties.
In the GAR (Georgia Association of Realtors) standard contracts, there are two ways to purchase real estate: Due Diligence and AS IS. Since the bulk of real estate transactions currently are some form of distressed properties (REO Bank Foreclosures, Short Sales, Pre-Foreclosures) it is very important to understand the difference especially when the contract instructions state that property is sold AS IS.
First allow me to define the differences:
DUE DILIGENCE – means the purchaser would have a mutually agreed upon period of days to inspect the property and its surroundings. This includes the actual inspection of the home structure, systems, roof, etc. It also includes any additional tests the purchaser may want to perform during this time period: termite inspections, radon gas, soil tests and inspecting the neighborhood and surroundings. The later would include research for any landfills, high voltage power lines, registered sex offenders, etc. The costs and work of these are the sole responsibility of the buyer.
AS IS – means the purchaser is forgoing all inspections purchasing the property AS IS with any and all faults whether known or unknown. The Seller will not perform repairs of any defects.
What becomes confusing is when the Bank/Seller advertises the property AS IS. This does not mean that the Seller will not allow inspections to take place as it is the right of the purchaser to inspect the premises. What this means is that after the inspections have been completed, the purchaser understands that no matter the outcome, the seller is stating they will not make any repairs. In distressed sales (foreclosures and short sales) purchasers should always choose the “due diligence” route and perform inspections knowing that within the timeframe they can either accept the property “as is” OR terminate the contract and receive their earnest money back (within the due diligence time frame).
Now with that being said, if a purchaser submits an offer on a bank owned foreclosed property and inspection finds issues that would not allow purchaser to move forward with the property through their VA or FHA appraisal, I have seen instances where banks did in fact complete repairs. You may be saying that this is in direct conflict of what is written above and you are correct! Since the end of 100% financing in 2008, the two most popular financing options have become FHA and VA loans due to their lower required levels of down payment. As of 2010, VA still offers 100% financing and FHA offers 96.5% financing. Since the majority of current buyers are using these two types of loans, if the home does not pass FHA or VA minimal inspection guidelines then the bank realizes it will take longer to sell therefore the required repairs must take place to get these homes off their books. There are two common solutions to this problem:
Some banks will pay for the repair costs out of their own budget
Some banks will repair however roll the repair costs back on top of the sales price
It is important for the purchaser or purchaser’s agent to inquire before submitting an offer whether the property will pass FHA or VA inspection.
You have been out scouring the area you want to be in, walked through dozens of homes in search of the right one. Finally you find it, your dream home! You submit an offer and are looking forward to an acceptance or a counteroffer but instead you are hit with a “Multiple Bid Scenario – Please submit Best and Final Offer”.
What?!?
What this means is that other buyers have stumbled across your prized home and fell in love just like you did! Sometimes it is a foreclosure property, sometimes a short sale and sometimes it is a regular resale listing. Many buyers become very stressed out asking me how to handle it and my answer is always the same. “Best and Final” is actually what it means. The seller is looking for your absolute best and final offer, there will be no counteroffer, the seller will move forward with the best net offer on the table by the offer deadline. The offers of others will always be held confidential (sometimes so will the number of offers on the table).
In these scenerios it is crucial to know the comps of other properties in the neighborhood. In the event of a foreclosure, the property could be priced well below fair market value and the bidding could significantly increase the final sales price. For instance, not long ago a foreclosure hit my client’s radar hours priced at $114,000. After reviewing the comps I found that sales in that Powder Springs subdivision ranged from $189,000 – $260,000 and this particular foreclosure was the largest floorplan in the subdivision. We submitted an offer for $135,000 which was $21,000 OVER ASKING PRICE. Unfortunately we lost the bidding war. We found out later that the property sold for $164,000 – Fifty thousand over asking price. While that is not the norm, it is an example of how important comps are when bidding.
Normally, as detailed in a previous blog “The Skinny on Foreclosure Bidding”, multiple bid scenerios usually result in a final sales price at or above list price. With that being said, how do you know which number makes best sense for you?
I always tell my client to think about the number that they can sleep well at night knowing that they wouldn’t have paid 1 penny more for in the event they lost it. Nothing worse than a client coming back to me and saying “I know I bid $150,000 but I really would have gone up to $154,900”. In best and final scenarios, your absolute highest bid is what you should submit. If your submit best and final is truly that, there is nothing more you can do. Good Luck out there!
Obviously real estate market news is local and it is worth noting that my real estate blogs are for my team’s experience in western Atlanta suburbs (Cobb, Paulding, Douglas and Cherokee counties).
There is definitely a misconception of foreclosure buying out in this market at the present time. Some buyers will listen to their Realtor’s sound advice from the beginning and some will lose a few homes before they accept the reality. The reality is there is NO LOWBALLING on foreclosures!
Yes, I said it! The foreclosure myth is that a buyer can submit a lowball offer to a REO (Bank owned property) and they will gladly accept. What this means is that a home that is priced at $150,000 and the buyer thinks they can buy at $75,000. So sorry to disappoint!
Right now there are two different scenarios we are seeing in the marketplace:
Foreclosures are already being priced well below fair market value and a flurry of offers come pouring in within days (or hours) of it hitting the market causing a multiple bid scenario. For example the foreclosure was purchased a few years ago at $235,000. Current comps in the neighborhood (actives and solds) are ranging from 175k – 215k. The bank has the foreclosure priced at 150k. In a multiple bid scenario it is very rare that the home ends up selling below the list price and many times it sells for ABOVE the list price.
Foreclosures begin pricing at or just below fair market value and when no offers (or reasonable offers) are presented, the bank typically reduces in small increments on a monthly basis. Normally the reductions are dependent on the price point and range between $5000 – $10,000 per price reduction. This becomes interesting because a home can be on the market for a few months and after a particular price adjustment it now becomes the “magic number” and you guess it! A flurry of offers ensue causing a multiple bid scenario.
It’s actually pretty interesting as some foreclosure real estate agents actually post the transaction history for a particular property. For instance, recently one of my team’s Buyer Agents submitted an offer for a foreclosure that had been listed for 6 months! In the six month history the property price had been reduced a total of $40,000 from the original list price and had received 7 offers that the bank rejected. The bank had just reduced a mere $3,000 and that was the “magic number”! We now found ourselves in a multiple bid scenario. We advised our client of the situation and submitted our best & final offer which I must add was above the list price. We were outbid!
Is there room to negotiate with bank owned foreclosures? Yes but it depends on the scenario. Luckily in Georgia it is very commonplace for the Seller to pay Buyer’s closing costs so it is rather common for the bank to agree to that. If submitting an offer and the buyer’s agent can confirm that there are no other offers on the table, I have seen banks agree to anywhere from 5,000 – 15,000 in price reductions (depending on the price point). However in a multiple bid scenario, watch out and get ready to ante up or lose out!
If you are interested in buying a bank owned foreclosure, we would love to assist! The Walker Derby team assists buyers looking to purchase foreclosures in Acworth, Austell, Atlanta, Canton, Douglasville, Hiram, Kennesaw, Mableton, Marietta, Powder Springs, Roswell, Sandy Springs, Villa Rica and Woodstock
