Foreclosures from a Buyers’ Agent’s Perspective: Inefficiency Personified
Foreclosures are prevalent in the Metro Phoenix market, no doubt about it. Banks have recognized the significance of the problem and have recently responded with sometimes shockingly-low prices. We’re talking about 1600+ sq ft homes, less than 3 years old, in excellent condition, priced in the $120’s and $130’s. There are some great ownership opportunities in Phoenix real estate today!
So what’s the forclosure purchase experience like from my perspective? What’s the experience like for homebuyers? Unfortunately, each bank, each asset manager, each listing agent, and each title company has different policies and is different to deal with. I’ve found that the listing agent, overall, has the biggest impact on the transaction, for better or for worse.
To start with, if you’re serious about acquiring one of the market’s better values, you’ll need to be prepared for bidding war. One property we have under contract had 8 competing offers the first day on market and the purchase price ended up about 17% higher than the original asking price. Still a super value, but definitely not the value it was when it was first listed. You’ll need to be able to demonstrate solid financial qualifications, be ready to pre-qualify with the bank that owns the property (whether you intend to use them or not), and be prepared to jump through hoops. Many hoops.
Either when you make your offer or when your offer is accepted, you’ll be required to complete a ‘Seller’s Addendum,” which ranges in length from about 8 pages to more than 15. The Seller’s Addendum overrides the Arizona Purchase Contract and effectively rewrites the rules in the bank’s favor. Short inspection periods, as-is requirements, unilateral right to rescind, etc.
You’ll need to be on your toes! Many banks won’t sign the actual acceptance until they receive the closing packet just prior to close of escrow. The implication is that you’ll be working through an escrow with no binding contract in place, only the initials or verbal word of the Listing Agent.
The Asset Managers who negotiate the contracts are generally number-crunchers, with little-to-no experience with contract law. I’ve seen contracts that they ‘accept,’ where they literally cross out terms and write in what they’d like to see. Contractually, without the buyer’s signed agreement to a change in terms, it’s not a valid modification. There’s nothing more potentially surprising than getting a copy of the accepted ‘original’ agreement only to discover that it’s been physically modified without the knowledge of the buyer.
And are you ready for games? Banks today are more often than not kicking offers back and asking all parties to resubmit their ‘highest and best offer,’ even if one offer is clearly superior to the others. It’s their effort to understandably recapture as much of their lost investment as they can.
I’ve seen banks ‘accidentally’ accept multiple offers then tell all of the ‘winning’ buyers that they need to resubmit their highest and best offers. Talk about an emotional roller coaster!
Perhaps most frustrating is the fact that all timelines are moving targets that the buyer is expected to adhere to, but the bank and title companies don’t seem to strive to meet. Title companies have stated for some banks that they have 24 hours to approve the Pre-Audit HUD-1 (Settlement Statement), while other title companies give other banks up to 72 hours to conduct the same approval. If you plan on moving out of one property and right into the new one, be prepared to camp out for a few days!
From my perspective, the bulk of the problems arise from the fact that much of the process is ‘loosey-goosey,’ without executed contracts that lay the entire framework of the agreement. The bank’s timelines shift on a whim. Executing even the slightest modifications (e.g. adding one spouse to the contract) can be such a daunting task that many listing agents will advise against even trying. And if you are fortunate enough to have the change approved, it will (with some banks) require a full re-draw of all contract paperwork generated to date!
Add to the fact that, at least in AZ, the title companies that handle large foreclosure accounts have set up ‘clearinghouse’ offices that do nothing but handle these accounts. The escrow officers at these offices are overworked due to understaffing and customer service and communication suffer dramatically as a result. Title companies are supposed to be 3rd party intermediaries, but that obligation does not apparently carry forward into any particular standard of service. Today I spent 45 minutes waiting for an escrow officer who was ‘on the other line’ only to have her assistant field my call and tell me she couldn’t help me with my question and would have the escrow officer call me back when she was off the other line. She never called back.
The reality of today’s market for Scottsdale real estate and Phoenix real estate is that foreclosures are here and they’re going to be here en masse for some time. Realtors need to be organized and knowledgeable enough to protect their buyers’ interests, and adept at explaining the pros and cons of buying real estate from a bank. Given the right expectations and a critical eye, a foreclosure can be an awesome investment!