What As-Is Really Means – REO Buyers Beware

I recently worked with a Buyer on an REO (bank-owned) transaction.  Her budget was tight so we had been slugging it out with all the other bargain hunters here in Gilbert to find a great home at a great price.  Because we hoped to close the deal sometime in 2009, we decided to forego short sales and that left mostly REO’s.  It was tough to find a home within my Buyer’s budget that met all of her criteria.  We were outbid several times, when we finally thought we hit pay dirt with a great little home in Neely Farms.

Here’s how the property was described in the listing:

BANK OWNED PROPERTY. THIS IS A GREAT PROPERTY FOR A FIRST TIME HOME BUYER OR INVESTOR. NEEDS SOME WORK, BUT WITH A LITTLE TLC IT WILL PROVIDE INSTANT EQUITY. THIS HOME IS BEING SOLD AS-IS AND IS PRICED AS SUCH. QUICK RESPONSE TIME FROM THE BANK.

Well, what REO doesn’t need a little clean-up right?  The home was priced very well for the neighborhood and a little paint and carpet – that’s easy. Our first look at the home revealed a little more than TLC required however…the AC unit was GONE! 

Good news, though.  I talked to the listing agent about the lack of AC and without hesitation, the bank agreed that they would replace the AC unit.  We just had to write it up in our inspection report and they would take care of it! Wow…so, even though the home was bank-owned, and being sold AS-IS, the bank was willing to make this repair. So we wrote up the offer – I mean, what’s a little TLC and a new AC, right?

The offer was accepted and our inspection period began.  The inspector called me about 30 minutes after he began the inspection.  “You better get over here”, he said, “There are some issues…” .  Sure enough, the house was basically cracked in half.  Major structural problems throughout the home.  We decide to take a pass on this home…structural issues don’t fall in line with my interpretation of TLC.

I contacted the listing agent, explained why we were canceling and sent him a copy of the inspection report that detailed the structural issues.  

And in this age of disclosure, I was really shocked to see the listing back on Active status with the exact same verbiage warning that a little TLC was required. No disclosure of a missing AC or structural problems…just a little TLC.

Well, a cash buyer snapped up this little bargain, and I sure hope he got a home inspection before he closed so he was aware of home much TLC was really required.  

But this story doesn’t stop here…I have talked to a number of other Realtors with similar stories of bank-owned properties with major defects that were not disclosed even after the listing agent was notified that they existed.  According to one listing agent, the banks will take their listings away if you fail to follow their instructions and omit disclosures about material defects that might affect the sale of the home…EVEN THOUGH IT IS REQUIRED BY LAW IN ARIZONA!

So Buyers, beware!! Yes you can get a great deal, but make sure you are extremely diligent in your inspection of the properties.  You never know what lurks behind that warning of TLC!!

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