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Ever since I got in to real estate in the 90s, the public has had a bit of a preoccupation with buying foreclosures. The perception that a bank owned property is a bargain is hard to argue with, but it’s not always a simple or straightforward process. Having specialized in distressed properties for decades, I’ll share some things that buyers really need to know before they purchase something around these parts, because New York is a different animal, and Westchester and the surrounding counties are not like upstate either.
- The decision maker is an asset manager at the foreclosing lender. Asset managers have quotas, deadlines, no small amount of pressure to dispense with non-performing loans, and are not touchy-feely. You will never be able to call the asset manager on the phone and talk to them.
- The terms of the contract are not open to discussion like other contracts. In a regular transaction, the lawyers often “mark up” proposed contracts until a consensus is reached and the buyer attorney meets with the clients to sign. Sometimes it can take a week. In a bank owned transaction, the attorney for the seller will not remove a comma. This is particularly true in times like we are seeing now where the seller has multiple offers and can just go to the next buyer if the current purchaser’s attorney attempts any pushback.
- The home is devoid of the history that would otherwise be available when buying from a seller that has, for example, lived there for 20 years. If a wall appears to once have a doorway, no one can explain what happened. If there is a water mark on the ceiling, you can inspect all you want, but there is no current occupant to share that the source of the leak was remedied. More of a concern is what may not be visible to the naked eye; I have seen instances where the former owner sabotaged the property in some way that’s not visible, like damaged pipes behind walls or some foreign object in the chimney. Inspections are paramount.
- Typically the bank will allow you 10 days from contract signing to perform your inspections. These are typically “as is” sales for many reasons, but if there is a serious health or safety issue the lender may be open to addressing it with either a small price adjustment or documented work. But do understand that the vast majority of your findings will simply be on the to do list for when you take ownership.
- Deadlines are rigid. The bank attorney might grant a mortgage or closing extension if they have good communication, but even then there could be a per diem charge. I have seen deals get cancelled for missed deadlines.
- You will pay the state or municipal transfer tax that the seller would typically pay in a regular transaction. The state transfer tax is $4 per thousand in price, so a $500,000 house would have a transfer tax expense to the buyer of $2,000.
This should go without saying, and I would never impugn the good name of any listing agent on a foreclosure, but you should always use a good buyer agent in a transaction like this. The listing agent works for the seller, and the amount of advocacy needed in a distressed property is much higher than a typical property. A purchase of this magnitude should never be a do it yourself project.
When I went to pick my son up from baseball practice earlier this week, a friend came up an smiled at me. “Sorry about your pay cut!” I knew what she was referring to, and as I peruse the news reports on the recent NAR commission settlement, I share many other Americans’ frustration at the failure of our journalism to accurately report on the matter. I know racy headlines get clicks and sell papers, but accuracy in reporting is still important.
If you’re my age or older, you probably recall the the old Dick Van Dyke show. Dick Van Dyke Played Rob Petrie and his TV wife Laura was played by the great Mary Tyler Moore. You may not recall the exact address, but the Petrie family lived at fictitious 148 Bonnie Meadow Road, New Rochelle. Bonnie Meadow Road actually does exist! 9 out of 10 Westchester residents over the age of 50 know the show was set in New Roc, but even I didn’t know the address. 
If you’ve ever wondered what the story is behind those flimsy looking signs nailed to telephone poles all over the place promising you a fast cash sale on your house, I have the answer.
If your budget is in the $700,000 range and you’re looking in Ossining, you’ll be pleased to know that you can still buy a 4 bedroom home on over an acre like the one we just closed on this week in town. 5 Ridgeview drive has 4 bedrooms, 3 baths, and a 1.6 acre lot.
Swimming pools are probably the last thing on most peoples’ minds but we are still selling homes that have them, and this thought is a bit overdue.
When I was first licensed in the 1990s, if a house didn’t sell for a period of time like 30 or 60 days, we would often reduce the price. Sometimes it was because we had too few showings, or because the showings we had didn’t yield any offers. On occasion, some home sellers would voice concern at a price change because no one had seen the house to give them price feedback. We’d have to explain that the feedback was the actual absence of showings. It wasn’t a truly data-driven process, however, because we had no means of measuring who saw the house either through their agent’s analog means (like seeing it in a broker’s binder) or advertised in publications and passed on it. We did have ample evidence that once a price was reduced, that the market responded.
Back in 2009, I was approached by Redfin to help them enter the Westchester real estate market as a referral partner. They did not have employee agents here, so referring clientele to other brokerages would be a win/win arrangement to start. I was eager for any new source of business, and took a closer look. Part of their vetting process was to survey my past clients, which was fine, but to also publish my client’s reviews online.
New York’s New Property Condition Disclosure Statement
For more than 20 years, home sellers in the state of New York have been required to furnish their buyer with a form known as a Property Condition Disclosure Statement (PCDS). It is a collection of several dozen questions that the seller is required to answer about the characteristics of the home. The law always allowed sellers to forgo the statement and credit their buyer $500 at closing instead, which is what sellers in this area did all the time. It was small price to pay for the theoretical shield of not making any representation that could be erroneous. As you can see, some questions are not easy to answer.
This is just a snippet from the 8 page, nearly 60 question form, but I can see why the advice was always to issue the $500 credit instead. Our housing stock around here trends older. How would someone know if there was ever a fuel tank on their property 100 years ago, or if there was ever a landfill there? The house I grew up in was on a former peach farm. That sounds harmless enough, but for all we knew there could have been a deep well, or a garbage pit, or a garage or fuel storage 100 years prior.
The law recently changed, and the following is the memo we got from our friends in Albany:
The change has caused quite a stir, since there is no alternative to the statement anymore.
Here’s my advice to all home sellers:
Talk to your attorney.
That’s it. That’s my advice. And if you think I’m being glib or passing the buck, let me explain that this is a recent change to a law that requires new paperwork, and the proper source for legal matters and related paperwork is…your attorney, not your broker. It is ethically prohibited for us to give legal advice.
Like any change, this is causing consternation and stress in the real estate industry, and like most changes the angst is worse than the reality. This form was filled out all the time upstate where $500 was not small change, and I’ve never heard of it causing any issue.