If you can, always get repairs completed before close of escrow but it is not always possible. In your case it may be hard to get the REO bank to pay for the repairs, but if they are paying why are they not doing thus beforehand.
Depending on your lender you may or may not be able to get them to keep to the "holdback". If this does not work talk to a lender who can see if you and the property could be financed through an FHA loan which allows for ceartain repairs after closing, it may cost you a little more but if the property is a good deal / and it is what you want and that you are prepared to deal with the liability of the repaitr and condition.
In the end, seek your Realtor' advice and talk to the broker if you are looking for extra opinions who know all the facts of your case.
I advise my clients to take the money after confirming the bid with an independent opinion.
Surprisingly there are ways to install a simple French-drain incorrectly. When I was doing this kind of work I saw many examples of drains that didn't have the pipe down far enough in the trench allowing water to still flow under the drain. I've seen materials used that weren't intended for the purpose and materials installed incorrectly i.e. not according to the manufacturerâ€™s instructions.
Generally, french drain work is expensive, time consuming. And, generally, the seller has a vested incentive to do the least expensive work possible.
I am afraid I cannot answer this question without knowing if you are getting your loan through the REO owner of the house.
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There was a pre-existing condition that the underwriter decided to make a pre-closing repair condition (my buyers were using a 203k to purchase the property) and the seller rejected the repair even with a bid and price increase to match the bid amount.
In my opinion moving the installation of the French Drains to a prior to close condition may kill the deal. You are also trying to reopen the contract for repairs on the property and that the selling lender may not like.
Just my opinion but ask your REALTORÂ® what they think.