Profile picture for jdshaw

Foreclosure home contract contingencies and escalation clause

Hi, 
My agent is stating that having less ( or no ) contingencies on contract for buying a REO home is the best way to win a contract from bank.. Do bank prefer contract with less offering price but with no contingencies vs higher price with basic contingency like HOA or financing .. This is for a foreclosed home ; which looks good in shape but with "minor" known repairs.. 
Also, my agent is also saying that escalation clause will not hold for banks as well..e.g. someone with less offering price with escalation clause upto x amount vs someone with higher offering price ( less than escalation value ). they will go with higher offering price instead of giving chance for escalation .. 
Any opinions ?
  • November 11 2012 - US
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Answers (1)

Profile picture for Cindy Quinton
 I was excited about a bank owned home for my family. We had been looking for over a year and this home checked off every must have, and every item on the wish list too. It was drawing a ton of attention before it even hit the market and I knew we would have to go to the top of it's value to get it. 

I hated to pay a lot more than the next bidder, so I did extensive reading on this subject of an escalating offer (bank websites and all over the internet). The real problem with an escalation clause is there is usually NO way for the listing agent to transmit that information with your offer to the bank/owner. So essentially they will submit your offer and the bank will likely never even know about your willingness to escalate the price. Your agent is probably correct, it just won't work. 

If a property is in decent shape, I think the banks tend to look at the bottom line more than whether it is cash or finance. Obviously, if the home is in bad shape, and they fear it won't finance, they may go with cash. Cleaner offers are more desirable; however, if the bank likes your price, they may counter on any issues that bother them. Also, there simply aren't a lot of cash offers beyond a certain price. And those with cash are demanding the very best deals. I also think in general the banks are giving a short window for buyers to get financing confirmed and if they don't they just say "NEXT!" 

If you want closing cost, think about it as a tack on to the price. 

Honestly, as far a contingencies, if you need financing...well, you need financing, not much you can do about it. So ask for it. However, I wouldn't bother asking for a repair cap, they either will or they won't fix items. If you ask for them per your inspection, they will say no....and it the appraiser demands them per his inspection they will likely get it done. 

My advice is to listen you your agent. If you really, really want the home, offer the maximum amount you would pay for the house and walk away. If someone gets it for more, you know they paid too much. Put in any contingencies that are deal breakers for you (if you need to borrow, a financing contingency is a must and so is an appraisal contingency). Keep it as clean as you can, but don't leave out any protection you need.

PS...I closed about a week ago. 
  • November 11 2012
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