How to Buy a Bank Owned Home

Buying a banked owned or foreclosure property can pose special challenges. Real estate laws vary from state to state. Real estate sales licensees must take two tests to get their license. One test is the federal test, the same for all real estate agents, all over the country. The second test is the state test. Each state has its own test, for laws vary from state to state. Some states require an attorney participate in the transaction, while other states, like Arizona, do not need an attorney to close a real estate transaction. Because of this, the procedure for purchasing bank owned homes might vary from state to state. Yet, the following steps should help you understand the process, and look out for potential pitfalls.

Difficulty:

Moderately Easy

Instructions

1. Expect the bank to have its own purchase contract. Many states use a standard real estate sales contract. Although, in real estate school they teach us you can write a valid contract on the back of a napkin. In Arizona, Realtors typically use a contract prepared by the Arizona Association of Realtors. Yet, even if the initial offer is written on this standard contract, the bank will come back with its own contract. Read it carefully. Every line. Even if you are working with a licensed real estate agent, that agent is probably not familiar with that particular contract.

2. Expect to wait. While one would think banks are in a hurry to unload foreclosed homes, they operate on a different time zone. It can take days and weeks before you hear back from the bank on your offer.

3. Expect to buy a house "as is". Banks typically list their properties "as is", meaning they won't make repairs. This does not mean the buyer can't inspect the property, they should. It is critical to inspect the property during your inspection period. While you might be willing to make some minor repairs, you want to know if there is some hidden, major problem with the house before you continue with the purchase.

4. Don't be afraid to ask for a repair. Even if they say "as is" banks will sometimes make repairs. Once, one of our buyer's had a problem with their lender. Unless the bank repaired a cracked window, and fixed the heater's thermostat, they would not fund on the loan. The bank made, and paid for the repairs, at no cost to the buyer.

5. Don't assume the foreclosed property is the best deal. There are lots of properties on the market right now, many with great prices and they aren't all foreclosures. With a foreclosure, the banks are selling the property as is, and letting the buyer they don't know of any problem - which doesn't mean there isn't one. Sometimes disgruntled homeowners, who have been kicked from their home, do some unsavory things to the house, that isn't detected until after escrow closes. When you are buying from a homeowner, that owner normally doesn't sabotage the home.

Tips & Warnings

• Buy a home warranty.

Resources

• Buying a Home Warranty