In general, they are a cost of doing business with a bank/REO. Think of the risk these addenda present as the counterbalance to the reward of the lower price you're paying for the property.
I would recommend against trying to negotiate these terms with the bank, especially if the property is a great value and/or you really want it. The rep for the bank generally wants "easy" more than they want $$.
Best advice - read the entire REO addendum carefully to fully understand the risks so you can balance it against the reward.
In my opinion, the cancellation clause isn't the real risk since it's rare. Look out for:
* De-Winterization Costs - are they going charge you for turning utilities on/off for the inspection?
* Delay in Closing - they typically have near punitive daily charges for closing late due to Buyer. You want to be sure that your lender is well aware of this before they agree to the closing date.
* Closing Date - depending on the bank, this can get tough since many have 30-45 closing dates from 'verbal' acceptance, however many buyers don't want to spend money on appraisals/inspection until they have written/official/binding acceptance - which can burn up 10 or more days of the closing timeframe at put you at risk of late closing.
* Contingency Time Frames - do they start at verbal or written acceptance? This is a big issue in your risk planning.
* Inspection Contingency - make sure have a clear option out if you don't like what you see. BUT... also keep in mind that despite what they say, you can get banks to do repairs. I've had 3 clients in the past 9 months get new roofs from the bank. It just needs to be need a big issue, and carefully presented/negotiated.
* Financing Contingency - make sure there are provisions for low appraisal that allow to get out.
Those are the big issues I often find, but it seems there are curveballs in each REO addendum.
Bottomline, you're typically going to put at risk about $1,000 of your money and a hand full of hair that could turn gray on way to a successful closing - but often you'll get back at least 5% of home's price in a better value.
Best of luck with this!
Good example...sometimes a State changes a Law that requires the bank to do something differently than was in place at time of contract and prior to closing. Sometimes they have to cancel the sale until their attorneys review that new law, and determine whether or not that new law affects this transaction and this closing.
They must, and should, leave their options open and have the right to cancel in case something like this comes up, and that is usually beyond their control. Still...as Phil said...most close just fine. I won't say don't "worry" about it. Just know it's not over until the property is recorded in your name. That is "the nature of the beast".
The price should be low enough to account for the increased level of risk on your part. One of the reasons "bank-owneds" usually sell for less than "fair market value". If you are buying it for 10% less than the comps, ask yourself if that saved money is worth that risk. Different buyers will have different answers to that question.
You get it cheaper for a reason...this is one of those reasons.
Another term that is important is that typically the bank will retain an election of remedies in the event of a buyer breach. Thus rather than just being able to retain the earnest money, they can sue for damages, regardless of the choice made on the NWMLS form. I've never heard of one doing that, but they have that right. On that clause though I have seen banks that don't change that term.
This is a common frustration when purchasing a REO property. Unfortunately, many of the lenders are inflexible with accepting any changes or deletions to their addenda. The best way to protect yourself is to have the form reviewed by an attorney so that you know exactly what you are signing and then you can decide whether you want to proceed. Another important thing to look for in these addenda is verbiage that says the buyer will pay for "transfer taxes" because often times the buyer ends up agreeing to pay the excise tax (customarily a seller tax and 1.78% of the purchase price) without even knowing it. Again, the important thing is knowing exactly what you are signing and making sure you are comfortable with it.
I deal mostly with FNMA. They have an addendum that they insist you sign with no variations. You have two options. Sign as is and close the sale. Or decline the signature and lose the home.
Good news? Several million homes close every year with similar language!
I can't speak to the legality, but I've not seen that form before. You or your agent should have it reviewed if it concerns you. Since it's an REO and assuming it's vacant, if this is a major bank your agent can research to see how many of their other REO's have closed.
If you want the property bad enough you can accept it, but hold back on making plans to move until it's closed or you can strike that line and see what their reaction is or again seek legal advice and proceed as they suggest.