I recently had a conversation with an agent friend of mine who sells – almost exclusively – Fannie Mae homes in Western Washington. He brought up a subject that is definitely a frustration for all of us – agents, buyers and sellers alike. And for anyone who is thinking about buying a bank-owned home, this could be extremely important for the health of both your transaction and your sanity!
The first and most important thing to know, is that the asset managers at Fannie Mae (likely other banks will follow suit) will not extend closing. I repeat FANNIE MAE WILL NOT EXTEND CLOSING. Why is this so important that I not only repeat myself, but use all caps? Because, if you have ever been part of a real estate transaction you know that there are lots of moving parts that must come together to have a successful closing. In a standard transaction, with a home-owner seller and a ready and willing buyer, extensions are common and usually met with little resistance (if they are warranted).
How and why does this change so much when dealing with a bank?
Because the entire dynamic of the buyer/seller relationship changes when dealing with a bank-owned home. The seller (in this case Fannie Mae) is liquidating an asset, not a home, and therefore considers it nothing more than a piece of paper. The person who is ultimately making a decision to sell the “asset” is an employee of the financial institution and is being compensated to sell “assets” in a timely manner. This is the key difference between normal transactions and REO (REO is short for Real Estate Owned and refers to those homes owned by a person or institution, most common references to REO homes are those owned by banks or other financial intuitions) transactions and why this is such an important topic.
Many people work in environments where deadlines are set and expected to be met; this is no different with the asset managers for banks. A contract to buy a home (the “asset”) is entered into and a closing date is set. The bank and asset manager are now counting on that closing to happen on that day, and in that month, as their compensation is tied to the successful closing on the agreed upon date.
In the world of real estate, dates are not always static. They often change, based upon a wide variety of factors. When I’m working with a client, my only goal is that my client experience a successful (and hopefully pain-free) transaction, even though there very well be many stressful moments. Banks, on the other hand, do not think of the transaction with a “best for all” mentality. With the thousands of thing that have to happen in order to close a home sale, what most of us would consider a mundane extension, is thought of as a breach of contract by Fannie Mae.
A lot of time transactions close towards the end of a month, which makes an easy transition, especially for renters. Let’s say that a closing is supposed to happen on Friday the 29th. However, something happens to delay that closing, which will now have to close on Tuesday the 3rd. For a bank, this is the worst of all scenarios; not only do they have to extend (they don’t want to) but they have to extend into another month. And now everyone misses their bonus that month.
While I believe the banks are taking an unfortunate stance here, I cannot control it.
Knowing all of this – here’s my suggested solution if you’re buying a bank-0wned home. Determine a closing date that meets all the requirements for everyone’s schedule, including the lender. Then add 10 days to that date, so you have a buffer. That way if utility billings are inaccurate (which they almost always are on bank owned homes), or the lender documents are not completed and delivered on time, you are not breaching your contract and you have plenty of time to find necessary solutions. Additionally, banks love to close early (I believe they actually throw a party in their offices for every early closing), which means that if they can close in your 10-day buffer, they’ll do whatever they can to make that happen. With a 10-day buffer, everyone wins. And when everything works properly, you hit your target date and move in right on schedule.
What’s the bottom line here? If you are planning to buy a home (and it happens to be bank-owned) figure out a perfect closing date, and add 10 days. This simple solution can save your sanity and patience for painting all the walls of your new home … rather than using them up before you ever get to move in.
Brian Kayler - Business Consulting 