buyers agent

Buyers and their agents need to do their homework when purchasing foreclosures

If you are an agent representing a buyer there are some things you need to research before you submit your offer to the bank. And if you are a buyer using an agent then you should make sure they are doing this research for you.

The buyer or buying agent representing a buyer in a foreclosure offer should know what the bank bought the house back for. Did they buy it back for a reasonable and fair price or did they over pay for the house? If they overpaid for the house they may be looking to get to much back in return. The agent should compare comps of recently closed deals and pending deals to help determine if the house is reasonably prices and if it was purchased back at a reasonable price.

The buyer or the buyers agent should know what bank they are dealing with. Is this a large national bank like Wells Fargo and Countrywide or is it a smaller more regional bank? It is our experience that larger banks will usually respond faster than smaller banks. Larger banks sometimes may be willing to take a slightly bigger loss to get the asset off the books. One thing to keep in mind is banks do not always make the best decisions. We recently had a bank with a home on the market for $190K. There was an unapproved gazebo in the back yard and instead of spending a couple of thousand dollars to remove the gazebo the bank instead sold the property at a reduced rate that far exceeded what it would have cost for them to do the removal themselves. In the end they lost close to $50K more than if they had just had the work done.

The buyer and buyers agent should also contact the listing agent to get as many details as possible about the foreclosed house. This can be frustrating at times as some agents are not as good at returning calls as they should be. The buyers agent should be looking to find out if there are any other offers on the house, what bank is selling the house and what title company the bank wants used in the deal so the earnest money check can be properly made out. The representative for the buyer should also try to find out if there are any obvious material problems with the home they may have missed, how the seller wants the offer submitted and are there any certain requirements for the LSR (Loan Status Report) and earnest money.

The buyer and the agent representing the buyer in the foreclose purchase should also investigate how long the home has been on the market. The longer the home has been in possession of the bank, the more they have invested and the more they are going to want to unload the home. The days on market is not always a fair representation of how long the bank has owned the property as it may take time to either remove tenants or make repairs to the foreclosed home which can lead to a longer time frame than the days on market shows. If a property has been on the market for only one week and you make an offer, it may take longer to get a response than if the house has been on the market for two months. With only one week on the market the bank may want to see if any other offers come in quickly. You will often see this on offers that are submitted just before the weekend when the banks may want to see what weekend traffic brings.

An agent should also be investigating what price drops there may have been on the property, how often they have happened and when the last one was. With properties we have listed, we have found a bank will typically change the price a foreclosure home is listed for about every three to four weeks. If the last price drop was close to four weeks ago there is a good chance in today’s declining market that another one will be coming soon. We are required to provide banks we deal with a BPO (Broker Price Opinion) every 30 days for homes we list. Banks know we are in a declining market and they will adjust the price accordingly when they need to. There is the rare case where you may be watching a specific home for a few months and you will not see a decrease in price. If this is the case the buyer or buyers agent should call the listing agent and see if there may be any special circumstances.

Buying a bank foreclosed home takes a lot of due diligence by the buyer and buyers agent. Make sure you and your agent are doing what needs to be doing to best represent you.

Editors note: we will be doing many blog posts of foreclosure situations. If you have anything you would like covered please leave us a comment or send us a Tweet.