Contingency Home Sales Drying Up | Foreclosed properties left to wait for those with cash, first-time buyers
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Phillip Pettinelli, president of Southbridge Savings Bank.
Banks, real estate agents and cities that have been soaked by the wave of foreclosures over the last two years can’t seem to get the words “buyer’s market” through their lips fast enough.
And with more and more bank-owned, foreclosed properties hitting the market all the time, one might think opportunities to buy a home at a bargain price are at an all time high.
But the way banks handle the homes they’ve come to own through mortgage loan defaults has shut out wide portions of the buying public by narrowing the pool of potential purchasers to first-time homebuyers and people with the wherewithal to either purchase a home for cash or own multiple homes simultaneously.
Time On Market
The vast majority of homeowners in the market to purchase a home must first sell the home in which they live. In that situation, a homeowner could put his home on the market and begin searching for his next home.
That buyer can ask the seller of his new home if he will accept an offer on the home contingent upon the sale of the home the prospective buyer already owns.
But banks that own foreclosed properties, in some cases the best bargains on the market, are unwilling to accept such contingency arrangements. The policy practically shuts out all potential buyers other than first-time homebuyers, buyers looking for a cash sale or buyers with enough money to take on a new mortgage in addition to an existing mortgage.
Sara Kelleher Sears, vice president of Coldwell Banker Residential Brokerage on Park Avenue in Worcester, said banks with foreclosed properties on the market are just trying to protect themselves by taking contingency agreements off the table, but making those properties unavailable to such a large portion of the potential buyers on the market is part of what’s keeping foreclosed properties on the market for so long.
“A lot of bank-owned properties are in horrible condition,” Kelleher Sears said. And buying one “takes a lot of guts. It’s not for the faint of heart.”
In addition to being in poor condition, sometimes at the hands of the previous owners, banks do not provide any disclosures to buyers about the condition of foreclosed homes and will generally require a potential buyer to arrange and pay for home inspections, which in a foreclosed home includes having electricity, water and other utilities turned on.
“Banks are very inflexible,” Kelleher Sears said. “And I don’t think there really is a strategy” in place to sell their foreclosed homes with any alacrity. “They have no attachment to it. They’re not benefitting in any way from selling the house. It’s just a number to them and it’s an awful problem.”
Still, Kelleher Sears always recommends to sellers that they do not accept contingency agreements unless the buyer’s present home is already under agreement.
Shopping Spree
“A contingency like that is any seller’s prerogative,” said Philip Pettinelli, president of Southbridge Savings Bank. But Pettinelli said what a bank hears when a buyer asks for a contingency on a foreclosed home is, “Phil, can you take it off the market for six to eight months?”
And on a vacant, bank-owned home, the bank has either already paid to have the house winterized or will spend the next half-year heating and maintaining it, which is somehow less attractive than doing all the same things and waiting for a cash buyer, first-time buyer or second-home buyer to come along.
Pettinelli said a bank might be more receptive to a potential buyer who asks for a contingency after he has his home under contract with a seller.
Kelleher Sears also said the best thing for a potential buyer to do is wait until his house is under contract for sale to begin shopping for a new house. But that doesn’t allow a lot of time for shopping if the buyer’s goal is to move from one house to another.
Banks do not want to be in a position to sell a house out from under a buyer who has it under a contingency contract when a buyer with cash or financing in place comes along. “That’s not a good way to do business either,” Pettinelli said.
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