Even with the recent decline in the number of foreclosures listed for sale, today’s real estate market is still heavily driven by foreclosures. When I work with buyers, it seems I spend as much time explaining the process of buying a foreclosure as I do showing houses. With that in mind, I thought I would take a moment and explain the process of buying a foreclosure.
First of all, potential buyers always seem to mention that buying a foreclosure can be a long and tedious process. It has been my experience short sales can be long and drawn out, but foreclosures can be a smooth and uncomplicated transaction.
Once a buyer decides to make an offer, I put together an offer using the standard GAR (Georgia Association of Realtors) contract. This is the same contract that I would use on any offer. One key difference with the offer is that there is NO Seller’s Disclosure. The seller’s disclosure is a document in which a seller shares with a prospective buyer the history of the house. In the case of a foreclosure, the bank does not know the history of the house. Because of this, most foreclosures will be sold “as is.” At this point, the bank may accept your offer or they could make a counteroffer. This part of the purchase is similar to a traditional purchase. Eventually, both the buyer and the bank agree on a price. At this point, the bank has verbally accepted your deal, however, there is not a “binding agreement.” Next, the bank will generate another set of documents called the addendum and send those down for the buyer to sign. Those signed addendums are then sent back to the bank. Once the bank signs and sends the addendums back, there is a “binding contract.” This addendum period may take 7 – 10 days, which is one of the key differences in buying a foreclosure.
After the contract becomes binding, the buyer will still have a due diligence period to inspect the home. This due diligence period is usually 10 days, but could be as few as seven. During this 10-day due diligence period, a home inspection is done. On a traditional purchase, a buyer may present these finding to a seller and request some items be repaired. On a foreclosure, your inspection is to look for catastrophic problems that could prevent you from wanting to buy the home. If the inspection turns up any flaws, the buyer then decides to move forward knowing of the flaws or can terminate the contract. If the buyer walks during the 10-day inspection period, all earnest money will be returned to the buyer.
After the 10-day inspection period is over, the deal typically moves forward like any traditional transaction. The lender has time to put the mortgage package together and the appraisal is completed. The closing attorney is always chosen by the bank.
Buying a foreclosure can present an opportunity to purchase a tremendous deal. The process may take an additional 15 days longer than a traditional sale. With the guidance of an experienced agent, the process can be smooth and end with a successful transaction and happy clients.