After several months of looking, Tye and Suzie finally found the perfect home on New Years Day. This 3500 sq. ft. home had everything they wanted, and as an REO it was priced to sell. As soon as the bank opened for business on January 2, I was working the phone to get it accepted. Again, "pretty please with sugar on top" did the trick, and by the end of the day we had a tentative acceptance, with management approval coming on Monday.

When Monday rolled around with no "official" written Counter, Tye started to get nervous. Did the bank hate his offer? No, the bank's asset manager just didn't seem to get that VA loans are zero-down loans. Monday passed, and then Tuesday, and Wednesday. Each day I would call the bank’s agent only to be told that the “official” Counter hadn’t been approved by management. By now Tye was getting irate, and despite my continued assurances that the written Counter would come, he began to talk himself out of the perfect home. So it shouldn't have come as a surprise to me that when the Counter finally arrived on Thursday, Tye refused to sign it. "I wouldn't sign this Counter if I were buying the house with your money" is never a good sign.

It's hard to watch Tye shoot himself in the foot and talk himself out of a great deal. He got the price he wanted, the repairs he wanted, and the terms he wanted. He was buying the home under market value, even in this market. But because his issues were with standard clauses in an REO contract, I thought this might be a good time to discuss some of the differences that you will see when you buy an REO versus a home from a private owner.

Tye's biggest objection was with the "per diem" language in the Counter. Banks are concerned that houses will fall out of escrow, and that owners will drag the escrow out much longer than necessary, while the bank is losing money every day. Every REO contract now has a "per diem" (late fee) clause that allows the bank to charge the buyer a daily fee for each day closing is delayed beyond the scheduled closing date.

Tye's Counter called for a $100 per day "per diem" if Tye were to ask for, and be granted, an extension due to no fault of the seller. Tye felt that, since the bank took nearly a week to make a firm decision, the bank should pay him a late fee. I'd like to live on the planet where banks are out to give away money. (I’d have that 2009 Corvette I’ve been drooling over.) Despite my assurances that I've never had a client incur a per diem fee, Tye was incensed. How could the bank demand such a thing? They can, and they do. They also give a buyer ample time to close, and there is no reason to fear paying this fee if you are doing your part to close on time.

Generally an REO Counter will ask for a 45-day escrow. This bothered Tye, who wanted to close in 28 days. The escrow date is always “on or before,” but I could not convince Tye that we could close in 4 weeks if everything was in place. Some banks are even asking for 60 days.

Tye also took issue with the clause that stated that the buyer could not renegotiate after the home inspection was completed. I always request a due diligence period in which the buyer can do the inspection, and then cancel without risking the earnest money deposit if the inspection is not satisfactory. This clause would have allowed the bank to keep the earnest money deposit if Tye decided not to purchase the home after the inspection. However, this is the third contract I’ve seen recently where the bank gave the buyer time to do the home inspection before signing the Counter.

Most banks allow anywhere from 4 to 24 hours for the buyer to sign a Counter before the Counter will be void; the buyer then has the home inspected after signing. This bank gave Tye five days to sign the Counter! Tye insisted he was being given zero days for due diligence when, in fact, the bank was giving him a chance to do his due diligence before he even had to commit to buying the house. The bank would not negotiate with another buyer until the five days had passed, so Tye actually had an advantage; he was able to tie up the home for five days without having to commit his earnest money funds.

Tye and Suzie simply got cold feet, and were unwilling to accept the standard clauses in a contract. Every REO will have similar clauses, and there is no reason to fear these. A good agent won’t let her or his clients take on unnecessary risk. If you are working with an experienced real estate agent, your agent will thoroughly review the Counter before presenting it for your signature.

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