In recent REO transactions that I've been associated with, the banks have had the termite inspection and completed all of the Section 1 work prior to listing the property. What I did was made sure that company used was reputable and my clients and I received a copy of the report and the clearance. In this small town there are only a few different termite guys, so it's a little easier to verify quality, but these folks are liable so it's unlikely to have an issue either way. Another thought is to check the date on when the work was completed and then still have a full home inspection either way. I've seen issues missed from both inspectors on occasion.
If I'm not mistaken, you should have access to the termite report before the bank signs. In our case, the listing agent hadn't ordered one yet. Do you know if it's been ordered? I'm assuming if they specified a dollar amount, they have gotten one. The listing agent should disclose that to you now.
We bought two REO's. The first one was in a small town where everyone knows everyone so the termite people were reputable. The second one was here locally and the listing agent was a boob and the asset manager wasn't any better. I called the guy who did the inspection and decided he was on the up and up. We inspected another property that we backed out of due to termite. The seller's termite report didn't seem right, so we had another one done and that one was far closer to reality. Some banks don't even want to do Section I, so if the bank is willing to do it, I would just call the guy who inspected it and see if he seems legit. BTW, if the bank is going to do the Section I, it's probably worthwhile to have the same person do the Section II because their price will likely be better than having it done separately. Our agent picked up the tab for the section II.
First, I am surprised that the bank would be willing to do any termite work. But, that said, I would not worry as it is the termite company who will guarantee the work for a period of one year. If you have any other questions you can call or email me directly below.
Not at all Anurag, it's actually a "best case scenario" if they will pay for it. Typically a third party termite inspector will complete the inspection and the seller (bank) will pay for Section 1 repairs which are current damage. There is no risk at all to you.