Short Answer: Yes
......and No.
HUD (Housing and Urban Development) conducts a complete inspection of the property. This inspection is disclosed to you via www.BidSect.com (in Louisville, Kentucky) prior to you making an offer. The banks don't typically do that.
HUD conducts their listing through a single broker in each area. Unlike other listing, the list agent does not receive any contracts, do not get contacted for showings and do not participate in the negotiations at all. Every HUD approved broker in the area has a key to every HUD home on the market. I am, of course, a HUD approved agent and have made offers on many HUD homes on behalf of my clients.
A HUD offer is submitted by your agent electronically via the internet. No matter when the offer is submitted, No offer is considered for acceptance until the property has been on the market for 10 days after the initial offering. As of the current date, first offerings are released on Friday and the bidding stops at 11:59 Sunday night (10 days later). The results are released the next day by noon on Monday. If Monday is a federal holiday, the deadline is still the same but the results are not released until the following day on Tuesday. I see this as an advantage that you have a clear, concise time that you can expect an answer from the Seller. Accepted or not, one of the primary complaints from buyers submitting offers on a foreclosure is the waiting game while the seller tries to get a higher offer or a multiple offer situation. The disadvantage is that you will most always have a multiple offer situation and you ALWAYS have to give your "Highest and Best" bid if you really want the property. Even if there aren't any other bidders, you won't know that until after the deadline and there is never an accurate indicator of how many people are even viewing the property (remember, every agent has a key and no appointment is necessary). You just never know.
Add to all the above that fact that numerous properties in the Louisville Market over the past year have been listed by HUD at a price considered to be substantially less than what the market value would be. Intentional or not, this creates a feeding frenzy that leads to a multitude of bidders and a sale price that far exceeds the list price. I saw a property that fetched almost $30k over list price in the last 12 months. I have had many successful bidders that I represent, who acknowledged that to win the bid must be over the list price. **If utilizing FHA funds to purchase, please understand that as a Buyer who bids more than the list price (which is the price the property appraised for by HUD), YOU have to pay the difference between the appraised value and the sale price. It cannot be financed by FHA backed funds. You have the options of paying cash or conventional financing.
If your offer is accepted, your agent has 24 hours following the day after the acknowledgment to overnight ALL the disclosure, disclaimers, agreements and copy of the earnest check. The critical thing to remember is that you are dealing with a government entity. This can translate to mean that EVERY "i" must be dotted and every "t" must be crossed. Everything must be signed in BLUE ink only. Every space must be initialed by the buyer. If a buyer initials the seller's blank, it must be redone. Every page should include the property number assigned by HUD "205-xxxxxxx" at the bottom of it. The Buyer's broker must initial his lines and must sign two documents himself. There is NO substitute for his signature without a formal Power of Attorney. HUD gives a total of 2 chances to get this correct. If any blank is wrong or missing information or documents, they will request that it be overnited correctly within 24 hours. The 2nd time they request corrections it is with a stern warning that the deal will be voided if the offer is not corrected and submitted correctly within 24 hours--Regardless of whether this is the fault of the buyer or their agent! EVERYTHING IN A HUD CONTRACT IS BOUND BY TERM "TIME IS OF THE ESSENCE". All of this is said so you appreciate that a knowledgeable professional must be facilitating the transaction for you or you risk losing your deal.
There are advantages and disadvantages to both (some banks offer special finance options on their REO properties to owner occupants--HUD doesn't). The most important advantage you can have is a savvy, experienced agent that understands the process and handles your deal in a competent fashion while negotiating the best deal you can get.
Expert Real Estate Advice
Tuesday, August 10, 2010
What's Different About Buying a Foreclosure than any Other Home?
Over the past 2 years, distressed properties, foreclosures and short sales, have made up 40% of my sales. There are a number of differences in purchasing a foreclosure as opposed to purchasing a "retail" home.
Probably the most fundamental difference is in the aspect of negotiations. Unlike a "retail" situation, where the Seller could be emotionally attached to the home or an Estate situation where an Heir or Heirs may have sentimental value associated with the property, a foreclosure is simply dollars and what makes sense. That is, there aren't emotions on the Seller's side deciding whether or not the deal should move forward. A Seller could become offended by an offer and not even want to work a deal out with a prospective Buyer as a result. A Lender or Asset Manager who looks at an offer as a "low-ball" and not worth their time, just won't give it their time. They will let the offer sit on their desk until the day comes that another offer rolls in or, in some bizarre instances, months down the road actually contact the Buyer's agent and offer to sell at the "low-ball" price.
Another difference is Property Condition Disclosures. While the Lender has the responsibility to disclose known or discovered by them during the time they owned the property, the trend is that they rarely do. It becomes a situation of "Buyer Beware". This does not negate the Seller's responsibility or liability but in any event the Buyer should understand that they must do their due diligence if they wish to avoid making a bad deal or one that ends in litigation.
The deed conveyance is often different than ordinary transactions. Typically, the buyer will receive a Special Warranty Deed instead of a General Warranty Deed. In either case, the Buyer will still have clear title, free of any encumbrances or liens.
Something you will want to understand in advance is that the 7 page contract used by the Greater Louisville Association of Realtors will be mostly deemed unenforceable by the counter-offer issued by the Seller. Most, but not all, Sellers of foreclosures issue a counter-offer addendum even if they accept the price offered for the house. The reason this is done is because most of these banks have loaned nationwide and aren't prepared to deal with the multitude of contracts all having different governing laws and provisions. The easy answer was for them to prepare one contract that supersedes the local board contracts so they know exactly the terms of every contract.
The time frame is another consideration entirely. With typical transactions, Kentucky law states that most time constraints in a real estate contract are to be completed within a "reasonable time". This could translate to the following example:
"A contract states that closing should occur within 30 days. On the 31st day the closing is finally set for the following day. The Seller cries foul and wants to void the contract because the terms were not met (and he had been offered more money from a co-worker to sell to him). Under State law, 32 days may be "reasonable" and the contract may not be invalidated on that basis."
Every foreclosure contract I have seen has VERY strict time constraints and state this phrase, "Time Is of The Essence". Essentially this means that every time or date is to be held in strict regard. If an action is not completed in a timely manner, the contract is entirely voidable by the Seller. This is by the way, largely one-sided. It normally lays out harsh penalties for not closing in a timely fashion (I've seen penalties as large as $150 day + $20 per day from the Buyer's Agent from their commission). On the opposing side of this argument, there is no monetary penalty toward the Seller if the Seller or their Title company fails to schedule the closing in a timely manner (often the problem is obtaining a clear title free of defects). It may or may not allow the Buyer to void the contract if the Seller fails to obtain clear title in a timely fashion.
The return of earnest money is another tough subject with most foreclosures. Most foreclosures have a minimum earnest deposit of $500-$1000 although I've seen some as high as 3% of the purchase price. Many also state this has to be paid by money order or cashiers check (no personal checks). Many contracts have a clause that makes the Buyer forfeit their earnest money if the contract is not voided on the basis of inspections within the 10 day inspection period.
There are still other differences and caveats, but these are some of the most notable. The important thing to remember when dealing purchasing a foreclosure is to deal with an experienced professional who is familiar with all the in's and out's.
Expert Foreclosure Advice
Probably the most fundamental difference is in the aspect of negotiations. Unlike a "retail" situation, where the Seller could be emotionally attached to the home or an Estate situation where an Heir or Heirs may have sentimental value associated with the property, a foreclosure is simply dollars and what makes sense. That is, there aren't emotions on the Seller's side deciding whether or not the deal should move forward. A Seller could become offended by an offer and not even want to work a deal out with a prospective Buyer as a result. A Lender or Asset Manager who looks at an offer as a "low-ball" and not worth their time, just won't give it their time. They will let the offer sit on their desk until the day comes that another offer rolls in or, in some bizarre instances, months down the road actually contact the Buyer's agent and offer to sell at the "low-ball" price.
Another difference is Property Condition Disclosures. While the Lender has the responsibility to disclose known or discovered by them during the time they owned the property, the trend is that they rarely do. It becomes a situation of "Buyer Beware". This does not negate the Seller's responsibility or liability but in any event the Buyer should understand that they must do their due diligence if they wish to avoid making a bad deal or one that ends in litigation.
The deed conveyance is often different than ordinary transactions. Typically, the buyer will receive a Special Warranty Deed instead of a General Warranty Deed. In either case, the Buyer will still have clear title, free of any encumbrances or liens.
Something you will want to understand in advance is that the 7 page contract used by the Greater Louisville Association of Realtors will be mostly deemed unenforceable by the counter-offer issued by the Seller. Most, but not all, Sellers of foreclosures issue a counter-offer addendum even if they accept the price offered for the house. The reason this is done is because most of these banks have loaned nationwide and aren't prepared to deal with the multitude of contracts all having different governing laws and provisions. The easy answer was for them to prepare one contract that supersedes the local board contracts so they know exactly the terms of every contract.
The time frame is another consideration entirely. With typical transactions, Kentucky law states that most time constraints in a real estate contract are to be completed within a "reasonable time". This could translate to the following example:
"A contract states that closing should occur within 30 days. On the 31st day the closing is finally set for the following day. The Seller cries foul and wants to void the contract because the terms were not met (and he had been offered more money from a co-worker to sell to him). Under State law, 32 days may be "reasonable" and the contract may not be invalidated on that basis."
Every foreclosure contract I have seen has VERY strict time constraints and state this phrase, "Time Is of The Essence". Essentially this means that every time or date is to be held in strict regard. If an action is not completed in a timely manner, the contract is entirely voidable by the Seller. This is by the way, largely one-sided. It normally lays out harsh penalties for not closing in a timely fashion (I've seen penalties as large as $150 day + $20 per day from the Buyer's Agent from their commission). On the opposing side of this argument, there is no monetary penalty toward the Seller if the Seller or their Title company fails to schedule the closing in a timely manner (often the problem is obtaining a clear title free of defects). It may or may not allow the Buyer to void the contract if the Seller fails to obtain clear title in a timely fashion.
The return of earnest money is another tough subject with most foreclosures. Most foreclosures have a minimum earnest deposit of $500-$1000 although I've seen some as high as 3% of the purchase price. Many also state this has to be paid by money order or cashiers check (no personal checks). Many contracts have a clause that makes the Buyer forfeit their earnest money if the contract is not voided on the basis of inspections within the 10 day inspection period.
There are still other differences and caveats, but these are some of the most notable. The important thing to remember when dealing purchasing a foreclosure is to deal with an experienced professional who is familiar with all the in's and out's.
Expert Foreclosure Advice
Monday, August 9, 2010
Contingency Contracts...When is the Right Time to Use One?
A contingency contract is normally thought of as an "if, then" type of agreement. "If...I sell my existing home, Then...I'll buy this one". To date, I have never written one. That is not to say that I never will, but the circumstance that has this agreement making sense has not yet presented itself.
Simply put, you effectively are locking in a price today that is most likely higher than if you waited to sell your existing home and then submitted your offer. When you ask a seller to take their home off the market or at the very least, market the house far less aggressively, they typically expect some concession for their part. That normally is found in the higher sales price.
If the home is for sale when your home finally sells, then the price may have been lowered in the lag time or at the very least, softened the negotiations somewhat.
Unless the home is a one-of-a-kind dream house and nothing else will do, I try to steer clear of any contingency contract. The best financial deal is also the one with the least emotion attached.
Louisville Real Estate Expert
Simply put, you effectively are locking in a price today that is most likely higher than if you waited to sell your existing home and then submitted your offer. When you ask a seller to take their home off the market or at the very least, market the house far less aggressively, they typically expect some concession for their part. That normally is found in the higher sales price.
If the home is for sale when your home finally sells, then the price may have been lowered in the lag time or at the very least, softened the negotiations somewhat.
Unless the home is a one-of-a-kind dream house and nothing else will do, I try to steer clear of any contingency contract. The best financial deal is also the one with the least emotion attached.
Louisville Real Estate Expert
Subscribe to:
Posts (Atom)