But first, a quick background. Agents that are members of NVAR, and are REALTORS, use a 15 page contract that was painstakingly created by lawyers and a contracts committee. They try to design it as evenly as possible with several “fill in the blanks.” Local Realtors receive hours of training on these standard contracts. While a client might want to also have the contract reviewed by a lawyer, there is some comfort knowing that it everyone uses the same contract and was written by lawyers with a neutral bias.
But when you buy a bank owned property, you start with a standard contract, but then the bank sends their oftentimes non-negotiable “bank addendum.” I can’t blame them. Sometimes the decision maker is in another state and dealing with hundreds of offers. Any small change in contract terms might require bringing in lawyers etc. They would rather take a lower price, but leave their terms untouched.
The addendums are heavily 1-sided FOR the banks and since every bank has a separate bank addendum, there is currently no training for REALTORS, (I proposed an NVAR class to fix this) so that they can better understand them.
Here are just a FEW of the things you should know about bank addendum contracts:
- Addendum means “Everything in the main contract is nullified” if the addendum covers anything already in the main contract. So if your main contract says you get a walk through, but the addendum says “As-is,” the addendum wins.
- Some bank addendums are written nationwide and ignore local laws. Local laws DO supersede these contracts, so therefore sometimes there are terms in them that are not enforceable.
- Watch out for hidden new fees. One of the agents that I work with had their main contract agreed to, but the addendum needed to be signed. The addendum sneakily (is that a word?) shifted a $3,000 tax to the buyer. Hello! That is real money, don’t just sign it.
- Most addendums are more “AS-IS” than the regular contract. The bank would rather take less and be done with nickel and diming. This is fine, as long as you realize and are ok with this risk
- Most addendums allow the bank to cancel the contract all the way up to the close date. Yep, they can walk, sometimes for a $1,000 fee or sometimes with no penalty. If they get a higher offer, or whatever, they can break the contract. Again, this might never happen, but you need to know what COULD happen.
- Bonuses to use their title company. In Virginia the buyer is legally allowed to pick the closing company. But oftentimes the bank wants their company to do the closing (in part because they share in the revenue) so they offer a $1,000 incentive. On something like a bank sale, with the former owner losing their home, I would want MY title company to tell me everything is all clear.
- Termite provisions are stuck. Normally the seller pays if there is termite damage. The addendum shifts the risk back to the buyer. I’m not talking about the $35 inspection, I’m talking about repairs.
Does anybody else know of details that are hidden into these addendums? Again, there are dozens of variations, so make sure you review it carefully and have a lawyer review it.
Make sure you work with an agent that has done some of these deals and can guide you through the higher risks, but which oftentimes comes with lower priced bank homes.
Written by Frank Borges LL0SA- Broker FranklyRealty.com
Don’t miss the comments and discussion by other agents with other bank experiences. And please report typos! Keywords: Arlington, Fairfax, Alexandria, Manassas.