Types of Real Estate Purchases
There are 3 types of homes available for purchase in today’s Real Estate market.
1. Owner sold properties
2. HUD properties
3. Short Sales or Bank Owned Properties
Each type of property has its plusses and minuses.
We’ll start with “owner sold,” properties to give a general idea of timelines and expectations in a real estate transaction.................
Owner sold properties
An owner sold property is a “normal” sale. 90% of home sales are “owner sold,” properties.
An owner hires a Real Estate agent and has him/her determine what the home is worth, enter it into the Multiple Listing Service, and market it for sale.
When purchasing an owner sold property, the following is the normal course of events:
1. You make an offer on a home. The owner may accept the offer, or send you a Counteroffer. In a normal real estate transaction you can ask for closing costs to be paid at any amount. Each offer usually has 24 hours before the other party must give you a response. You always send your loan prequalification letter with your offer. Once an offer is agreed upon, your timelines that are built into the contract go into effect.
2. You give your Realtor your “earnest money” to be deposited with his/her broker. You may pay your earnest money in any form.
3. You schedule your inspections as soon as possible. You always pay for your inspections at the time of inspection, directly to the inspector.
4. If you find any significant issues during the inspections, you submit a “request to remedy.” A “request to remedy,” is a formal request for them to make repairs. Generally you only ask a homeowner to fix major problems. Sometimes the homeowner will fix the issues, but many times they just offer you a monetary credit to be deducted from the price of the house. If you can’t come to an agreement by the end of the “request to remedy” period designated in the contract, you execute a termination and you get your earnest money back from the brokerage.
5. You call the utility companies and have them put the utilities in your name effective the day of closing.
5. You do a walk through the day before you close, to make sure the property is in the same condition as when you made the offer.
6. You go to your closing where you sign all the legal papers for your home and mortgage, and you get your keys. You get your earnest money returned from your real estate agent at the closing.
7. You are a homeowner.
Short Sales/Bank Owned Properties
Short sales and “bank owned,” properties are another type home available for purchase.
In a “short sale,” an owner can no longer make his/her payments and alerts the bank that he/she has his the home listed for sale at least 90 days and is unable to sell at an asking price that gets them out of the house without making any money. The owner is generally not able to afford his/her home payments any longer and either stops paying the mortgage, or is only able to send in a portion. The owner or his/her Real Estate agent then petitions the bank to allow a “short sale.” A “short sale” is where the bank will take less money for the house than is owed, to avoid the home going into foreclosure. Banks will sometimes do this because going into foreclosure is a very lengthy and expensive process that potentially holds a good deal of liability for the bank. An example of this is:
A homeowner stops paying the mortgage, and moves out. The bank must wait until the person is 4-6 months behind to even start eviction proceedings. They must offer counseling the homeowner etc.. If the person isn’t paying his/her mortgage, he/she definitely isn’t paying the homeowners insurance. What if the home burns down during this time? The bank would be stuck with a defaulted mortgage and no asset to sell to regain any of the money they lent the homeowner.
The bank would rather get part of the money back than none of the money back; so many times they will approve a “short sale.”
A “Bank owned,” property means the owner can’t make the payments and has turned his deed in to the bank. When an owner does this, the bank does not have to initiate foreclosure proceeding, but doesn’t want to pay the insurance, mortgage, and utilities for long, so they will offer the home for sale at a reduced price to get rid of it quickly.
When bidding on a short sale or “bank owned,” property you generally get a home in much better shape than a HUD home, but “bank owned,” and” short sale’s” do have their own special issues.
When you submit a bid on a “short sale” or “bank owned” property it may take anywhere from 2-45 days to get an answer on your offer. It depends on who the mortgage holder (or bank,) is. A local lender may get back to you in 2-3 business days. A national lender may take up to 45 days to give you an answer. You will need your Realtor to call the listing broker and get specifics on that particular banks’ response time. To buy a short sale you must be prepared for anything in the “time” arena. You may be able to get in to the home in 60 days, but it may take up to 8 months, so you need to be prepared for the fact that your move may be several months out.
When you bid on “short sales” the bank is motivated by the amount of money they receive after everything is paid, so they may turn your offer down, but send you a counteroffer. A counteroffer is the bank saying “no, we won’t take that, but we will take this amount.” You are not obligated to purchase the home for the amount they send back, but you may choose to.
The bank will not always be willing to pay any of your “closing costs.” It depends on the bank. Some banks will pay some closing costs, some won’t.
When bidding on “short sales” you do not pay your “earnest money,” until the contract is accepted. The amount of “earnest money” you deposit on a “short sale” is from $500-$1,000. The bank will specify the amount. Earnest money on a bank owned property can be cash, check, cashiers check, etc...
Most banks will buy you a home warranty, but some refuse.
When doing inspections on a “short sale,” you do a regular home inspection. A bank will not make any repairs suggested during the inspection. We still recommend you do an inspection. You always pay for your inspections at the time of inspection, directly to the inspector.
If repairs are much greater than you anticipated, you can break your contract based on the results of the home inspection, and your earnest money will be returned to you.
Most banks also write in a clause, that if you don’t close on time, because of the buyer there is a $ penalty. Generally it will be from $50-$100 a day penalty for every day you go past the contract deadline.
Bank owned homes generally won’t make you pay to turn on the utilities, or be responsible if any damage is incurred by turning the utilities on.
HUD homes are homes owned by the U.S. Department of Housing and Urban Development. These homes have been foreclosed on already. The owners failed to pay their mortgage and either left or were evicted from their home. HUD homes are always vacant, so can be seen anytime.
HUD homes that are in moderate to bad shape. They sometimes require a rehab loan. HUD homes will always take the highest and best offer, with no consideration for the buyers. HUD homes require a contract plus 22 pages of ancillary paperwork that the government requires, so be prepared for a lot of signing. The signature of the Broker from your Real Estate agent’s office must also sign your bid, so you’ll need to complete the majority of the paperwork out before four, so the broker is still in to sign it.
HUD homes are “AS IS,” so they will make no repairs, and you cannot get your “earnest money” returned if you decide not to buy the home after you get an inspection. You will still need to get an inspection. You always pay for your inspections at the time of inspection, directly to the inspector.
HUD homes require a $1,000 “earnest money” deposit to be submitted prior to bidding. Earnest money deposits can only be accepted in the forms of certified check, cashiers check, or money order. Earnest money is only returned to you if you break the contract due to the death of an immediate family member, or a job loss. If you fail to obtain financing, you forfeit your “earnest money.”
HUD also requires you, as the buyer, to pay any utility fees incurred to turn utilities on, and off again, for your inspections.
When bidding on a HUD home, you generally get a response on your offer with 2 business days after the ininitial bidding deadline.
HUD does not do any counter offering. You submit your bid, and they either say “yes, or no.” They will always go with the person who submits the highest offer.
After an offer is accepted you have 45 days to close the transaction. After 45 days you must file extensions and there is a $25 per day fee for every day over the contract deadline that you don’t close the transaction.
For more information on purchasing a HUD home in Ohio, go to: