Risks of Buying Bank Owned Properties
In 2006, a housing bubble that had investors and homeowners scurrying to buy properties and take the equity out of properties burst. Suddenly, people found themselves unable to afford their homes and many properties were transferred back to the ownership of lenders. Many people are attracted to bank-owned properties because of the prospect of getting a good deal. However, there are high risks involved when buying bank-owned properties.
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Warning
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According to Century 21 Real Estate Agency, the biggest risk of buying any bank-owned property is that you purchase the home in as-is condition. Banks are exempt from having to notify potential buyers about defects in the property. In some cases, a home could require extensive repairs without the potential buyer's being aware of the home's rough condition.
Contracts
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Another risk of buying a bank-owned property is the inability to take legal action against a bank that has been unfair in its dealings. Most banks have very one-sided contracts that are used for all purchase and sale agreements. These contracts are nonnegotiable and prevent prospective home buyers from suing banks for any reason.
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Closing
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Banks are very firm about closing dates, and many expect potential buyers to be able to close in a maximum of 45 days. Buyers who are unable to close by the bank's date risk incurring mounting per diem fees. These fees would apply even if the inability to close were not the fault of the buyer.
Additional Costs
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Another potential risk is that a buyer may have to pay more than expected. Although many banks want to sell off foreclosed properties quickly, getting a good deal is not always possible. Prospective home buyers should realize that banks are hesitant to pay for many additional fees that home buyers traditionally have been able to get sellers to agree to share. Banks are reluctant to pay closing costs and expect buyers to pay for a city inspection. If any repairs are needed, buyers often have to accept responsibility for them before the closing.
Considerations
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Buying a home is an intricate process and is more complex when the property is bank-owned. Before you make an offer on a home, you should request a copy of the bank's addendums and carefully review them.
In addition to the usual risks involved in buying a bank-owned property, you should expect to play a longer waiting game than if you had to deal with a buyer face to face. The negotiation process can take months, depending on the number of offers on the property.
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