"Where's the bargains?" "I want to look only at foreclosures." "I hear from my friend who knows real estate that the only way to go these days is with bank-owned properties." -- an almost daily mantra heard by agents representing buyers in today's marketplace.
Great! There's plenty of them to choose from...in all shapes, sizes, neighborhoods, price ranges...and in all manner of conditions, too. Educating a client in what to expect when viewing foreclosures is key to making the experience time well-spent and not disheartening to a buyer. In a majority of the REO's that I have seen in my market, you can generally expect the appliances to be long gone. Dishwashers too. Sometimes cabinets, vanities, countertops, closet rods...you name it. Not always, mind you, but a majority of the time (that means over half the time, the coin comes up "tails" for those prone to flipping coins).
Be prepared to take into account the condition of the home when looking at whether it is a "bargain" or not. What will it cost you to bring the landscaping back from the jungle? Will that drained pool need replastering?
Will the property meet the requirements necessary for the loan? Most loans, ya gotta have a functioning oven...and that place where the dishwasher used to be?...got to put something there, too. Fridge? Not usually an issue whether it is there or not...don't ask me why, thats just the way it is.
There are lots of other things to keep in mind to protect and prepare your client when buying an REO property, too:
- No Seller's Property Disclosure Statement (SPDS) or C.L.U.E report (here's a hint...Listing Agents can get a C.L.U.E. report if you ask them)
- The contract that is used by the owner usually is one of their own...read it carefully & thoroughly. Contingencies and clauses usually present in your association's standard approved contracts are probably gone or worded differently. Make sure your buyer's rights and interests aren't being stripped completely.
- AS-IS: what if the roof leaks, or the electrical system is a nightmare? Will that affect the buyer's loan?
- Who provides the title insurance...and what type of policy?
- How about the utilities? Are they on, and will they be for inspections? Who is turning them on if you need them?
- Lead-Based Paint, Mold and other affidavits or disclosures need to be used if applicable.
- Inspections - don't start them until you have a fully signed, executed contract. Verbal doesn't cut it! Also make sure that the inspection period doesn't start until you have the full contract.
- Which escrow service is being used? Is it even in your town or city? (Whether the seller has the right to demand a particular escrow is fodder for another post)
Lender-owned properties can be great opportunities for finding value. The thing to remember is to always be aware before going into the "arena" with your buyer. Do your due diligence...and then some. Just because it looks like a "deal" on the MLS doesn't always mean it will be one in reality.
Preparing your buyers beforehand and watching their backs during the process is the reason they came to you in the first place. Imagine the referrals you can earn when your happy clients are showing off their new home to their friends and "the great deal their REALTOR got them" on it!