In the first four installments of this series (1st Thing You Should Know About Buying Foreclosures, 2nd Thing You Should Know About Buying Foreclosures, 3rd Thing You Should Know About Buying Foreclosures, 4th Thing You Should Know About Buying Foreclosures), I wrote about defining Terminology, Pricing, Multiple Offers and Response Times as they relate to “Things You Should Know About Buying a Foreclosure.”  Here’s the 5th post of the series:

• Condition – Foreclosures are always offered for sale in AS-IS condition. What that means in street language is, “What you see is what you get!” It also means “Buyer Beware!” The message the banks are trying to send is that they are not interested in doing any repairs on the property, regardless of the extent of any such needed repair(s).

NOTE:  This does not mean the buyer is not entitled to perform a professional home inspection, termite inspection, and any other inspection(s) desired (at the buyer’s expense), but AS-IS means if any repairs are called out or identified by inspector(s), the bank/seller reserves the right to refuse to perform them. So the term Caveat Emptor (Buyer Beware) comes to mind. The best advice is for the buyer and the buyer’s agent to do a thorough physical/sight inspection of the property BEFORE submitting an offer on a Foreclosure, and then follow through with a thorough professional home inspection AFTER securing an accepted contract.

An experienced, knowledgeable, professional Buyer’s Agent can be invaluable during this process/phase, so please be aware, be wise and be careful.

In the first three installments of this series (1st Thing You Should Know About Buying Foreclosures, 2nd Thing You Should Know About Buying Foreclosures, 3rd Thing You Should Know About Buying Foreclosures), I wrote about defining Terminology, Pricing and Multiple Offers as they relate to “Things You Should Know About Buying a Foreclosure.”  Here’s the fourth post of the series:

• Response Times – There have been instances where certain banks have taken as long as 2-3 weeks to respond to an offer from a buyer on a Foreclosure. However, in my experience the average response time from banks is typically 2-3 business days. Of course the case load of the specific asset manager, the proficiency of the listing/seller’s agent, and numerous other factors can increase response times, which is why there is no predetermined or predictable response time by banks to offers for Foreclosures.

The standard Arizona Association of REALTORS Resale Purchase Contract contains a section in which the Buyer’s Agent can specify a finite expiration date and time, but there’s nothing in the contract that requires the bank/seller to respond to the offer.  I normally recommend setting the offer expiration at least 2-3 business days beyond the offer submission date.  Protection is thus afforded the buyer so that the offer will not be ‘good’ indefinitely, but it still allows the bank/seller a respectable period of time during which they can respond before the offer technically expires.  When in doubt, consult with your Buyer’s Agent about potential response times and expiration dates.

In an exercise of great restraint, I’m going to refrain from leaping into a major rant on current HUD rules and regs, and the often disastrous ramifications of those rules and regs in the real estate market.  Oh wait – did I already commit a ‘ranting’?  Great gobs of goose grease!  Now let me tell you a story, and then you can tell me what you think.  Fair enough?

I just yesterday submitted a very strong, clean offer on behalf of a client for a home that she fell in love with in only 30 minutes!  Granted, no home buyer should allow their emotions to dominate a real estate decision, but in the real world, it happens.

This home buyer (my client) has been fully pre-approved by my preferred lender, a man of integrity with whom I’ve worked for several years.  In short, my client’s financial strength is as strong as an ox.

The offer itself was as strong as any seller could possibly hope for.  However, late this afternoon I received a text from the listing/seller’s agent, politely rejecting the offer.  No counter offer.  No apologies.  No thank you’s.

Why did the seller make such an aversive decision?  Because my client would be financing the purchase with an FHA loan.  Plain and simple, the seller does NOT want to deal with the risks and pitfalls of a transaction involving an FHA loan.

Now it’s your turn to ask — why?  Why in the world would a property seller refuse an incredibly attractive offer just because she’s using an FHA loan?

FHA has what are commonly called ‘flipping rules’, meaning if the property being purchased has been owned by the seller less than 90 days, then certain rules and requirements are automatically invoked.  One of those requirements is that two (2) separate appraisals must be performed on the property.  You might be thinking, “So what’s the big deal?”  To which I respond, appraisals are an art, not a science.  They are opinions of value provided by licensed appraisers.  And as such, it’s not uncommon to have appraisals on a given property come in at drastically different values.  Can you see where I’m going with this?

Cutting to the chase, the sellers rejected my client’s offer because they simply did not want the hassle and risk inherently involved with FHA financing.  Are they entitled to their decision?  Yes.  Is such a rejection becoming more and more common in this market?  Yes.  Is it reasonable to assume that such decisions by sellers are hurting the market? Yes.  Are the crappy appraisals (that we are often forced to accept) a travesty to the real estate market? Yes.

All of the foregoing Yes’s are nothing but my opinion.  Do you agree or disagree? I would love to hear your thoughts!

Meanwhile, my client has just re-filled her Prozac prescription.