How To Buy A Repo

Elden P. Bryan Residence
Image by Floyd B. Bariscale via Flickr

Everybody wants to buy a repo? What’s a repo? It’s a lender-owned home, a repossession. What’s so special about a repo, you may ask?  Main difference is the price, the price, the price. Lenders have no emotional attachment to a property. They just want it off their books as quickly as possible. To that end, repos are frequently, but not always [pay attention: NOT ALWAYS] priced below market.

So, that’s good, right? What’s not to like? Buyers get a below-market home. Lender/seller gets the property off its books. What’s the problem here?

There are a few issues when buying a repo.. Here are a few for buyers to consider.

Condition

By law, lenders are not required to offer the usual transfer disclosures required in California and most other states in which the seller discloses all the material facts about the home, including any known defects.  Why do lenders not have to disclose? Because the bank has never lived in the home and, in fact, most likely knows nothing about it or its history.

Buyers of repos get none of the detailed information sellers love to impart to buyers about what was done to the house, by whom and when.  Frequently, repos are not in great condition, truth be told, though most of them will have been cleaned of debris and tidied by the listing agent’s cleaning crew.

Remember: the former owners lost the house because they couldn’t make the payments. More than likely, they couldn’t pay for furnace cleaning or roof leak repairs or any of the multitude of tiny and large repairs that homes we live in get from us every day. This deferred maintenance  can cause hidden damage.

Remedy: Get a thorough home inspection from a competent home inspector. If further inspections are suggested in the report–plumbing, HVAC, roof or whatever–get them. This property may be offered as a  may be a bargain price, but it’s still a lot of money. It may wind up as no bargain if the pool equipment is broken or the roof leaks.  Do yourself a favor and spend the money to get the suggested inspections.

The Negotiations

Another area of difference concerns the actual negotiations in purchasing the home. Normally, you make an offer, submit it to the seller, get an acceptance or a counter offer and then go into escrow. The procedure for a repo is relatively the same except the seller is a faceless bureaucracy and usually you and your agent have no communication whatsoever.

It’s often even difficult to get in touch with the “listing” agent because frequently these “agents” are faceless themselves, communication through websites, email and voice mail.  These companies often list   hundreds of repos,   each one as lovingly treated as a disposable fork on a picnic.

Each bank and each “agent” has a different technique in negotiating with buyers. And the strategy also depends on the property. If the property is among hundreds of other repos, as in, say, Moreno Valley or Fontana, it’s all about the numbers and getting a buyer quickly if at all.  If it’s a desirable property in a good area of Arcadia, for instance, it’s a different story, though, again, it’s really about the amount of money involved.

So, for some repos, you make your offer, the agent submits it to the bank quickly, it’s accpeted, and escrow begins. For others, many offers are received, so then the agent ,in consultation with the bank,  takes one of the offers and works with it, going straight to escrow. Sometimes in this scenario, the agent comes back with a multiple counteroffer from the bank asking all buyers for their “highest and best offer”. Then, from  those that come back, the bank selects the best and opens escrow.

What to beware of here? The auction effect…we all became familiar with this during the boom market and it’s far from dead. Buyers will always vie to get a good property at a good price. Prevent yourself from paying too much by keeping your emotions out of it, if possible, and setting a price beyond which you won’t go, no matter what. That will immunize you against the auction effect.

Financing

Is financing any different for a repo? Will I have to use the bank which owns the house? The short answer here is NO and No. Some banks will require that you pre-qualify with a specific lender in order to have your offer considered, but no one can require you to use that lender. As with new homes, though, sometimes the lender will offer more favorable terms just to have control of  the situation. Should you do it? By all means…more favorable terms are always good.

Repos are a bit different as far as the transaction goes. Many banks require their own forms which, of course, are there to minimize the bank’s liability.  California, in particular, has many buyer-protection laws. Banks cannot require you as part of the transactions to give up your rights.

But, the bank may require a shorter inspection term [the normal is 17 days] or provide stringent conditions if the buyer’s loan isn’t funded in the agreed-upon number of days, especially if the buyer is not using the bank’s lender.  That’s not so bad. It may keep your lender and your agent on their toes.

Another issue is termite inspection. Many buyers assume that a termite clearance is required by law. Not so–it’s often required by the terms of the buyer’s loan, but many loans don’t require it.  Many repo listings specifically say that the bank-owner will not provide a clear termite. In this case, it’s up to the buyer to get a termite inspection and pay for any damage.

Got your heart set on a repo? Get over it. Set your heart on a good deal whether it ocmes from a bank or a short sale or even a savvy seller. In fact, buying from a seller who prices his home to sell quickly is the best way to go. At least, that seller isn’t going to walk off with the kitchen faucet or leave a big hole punched in the bedroom door…

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2 thoughts on “How To Buy A Repo

  1. Pingback: More About Repos: Avoid Rookie Mistakes « Diane’s Blog

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