Hi Everyone,

I have not worked very extensively with banks/REO's before. I have a client that is an investor (fairly new as well), that is wanting to bid on some REO's.

My question relates to making the contract to purchase contingent upon inspections. I know that most all listing say you are buying "AS IS", but how do banks look at contracts that are submitted with an inspection clause? Will they basically toss them out?

My clients are worried about being able to back out of the deal if their inspectors find more damage that they did not account for when submitting their original bid.

Thanks for your time.

They are fine with them, the house is still on the market. Some required bank addendums actually say they give you 5 days for inspection.

In my experience it depends really on the property. Again this is personal experience but a few years ago when I had a relatively new investor in the business they threw out our offer and wouldn't consider it unless we dropped the inspection clause (prime property priced at $20,000).

On the other hand, when I've dealt with higher priced REOs and my buyer wasn't always an investor, they have considered them. This happened on a $100,000+ REO. The market and demand were different. Most of the time I think it is pretty easy to deduce whether or not they will consider them or counter you to drop the clause based on the price and what is visibly damaged.

If your clients are worried about not being protected then go ahead and put the offer in with the inspection clause. The bank has the ability to counter if they choose and you are doing your part to protect your buyer's interests.

Most REO's will have their own contracts for you to work with. If there is allowed an inspection contingency, it will be in their paperwork. Some don't allow them at all, and your buyer must be satisfied with the condition of the house before making an offer. One example is VA, of which you have to be careful. They allow an inspection, but if you want out, they will not refund any earnest money. My suggestion is to familiarize yourself with the many different kinds of REO's out there, and what they will or will not allow. Most of the time, if it is a hot property, the person with the inspection contingency will lose out. Sometimes it is allowed only to owner-occupants, and not investors. It all depends on the managing company.

"As Is" usually does not mean the buyer cannot have an inspection done. It merely means that the seller is not willing to make any repairs that are noted/recommended in the inspection.

I have purchased a number of foreclosures for myself and others, and we ALWAYS stipulate that an inspection will be done - but we acknowledge that the seller is not obligated to make repairs - whether the items be warranted or non-warranted items.

We have an inspection done and then review the report. If there is too much wrong with the property - we walk and get our binder back. If not, we go through with the deal.

I'm not sure I ever had a case where the bank/owner/seller refused our request to hire an inspector at our own expense. I think if you are foolish enough to purchase a property under such conditions - you deserve whatever bad thing happens after you close.

Well said. Literally every bank addendum addresses inspections. I really can't think of anyone who doesn't allow them. But as Scott893 says they make no agreement to fix anything. Yes, they may consider repairs or an allowance to cover them if it is something not previously known.

However, the old trick of using the inspection to nickel and dime the bank at the last minute will almost always backfire on a buyer.

Working both sides of the REO transaction I tell my buyers that an inspection is fine and usually a good idea, but I also give the bank's perpective. So it's purpose is to discover if there are more problems then previously known. And that the bank may not do anything should they cite addition problems.

As long as the buyer comes across as sincere the banks will negotiate in a spirit of good faith. But if they get a whiff of gamesmanship...

Remember that they have seen it all.

Steele in Minnesota