Foreclosure home contract contingencies and escalation clause

Asked by JD Shaw, Ashburn, VA Sun Nov 11, 2012

My agent is stating that having less ( or no ) contingencies on contract for buying a REO home is the best way to win a contract from bank.. Do bank prefer contract with less offering price but with no contingencies vs higher price with basic contingency like HOA or financing .. This is for a foreclosed home ; which looks good in shape but with "minor" known repairs..
Also, my agent is also saying that escalation clause will not hold for banks as well..e.g. someone with less offering price with escalation clause upto x amount vs someone with higher offering price ( less than escalation value ). they will go with higher offering price instead of giving chance for escalation ..
Any opinions ?

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Sonal Goda, Agent, Chantilly, VA
Sun Nov 11, 2012
Hi Jignesh - every bank has a different strategy, so it is a good idea for your agent to confirm these things with the listing agent. It is also good for you to make sure your agent knows you have some concerns on these points.

That being said, in general, I have seen most banks are comfortable with the home inspection contingency (with right to void but no repairs) - it is part of most of the bank addenda. If the listing agent has a really good relationship with the asset manager at the bank, he/she can convey that you are waiving other contingencies. But I would make sure that the bank will even know about this.

With the escalation addendum - it is true that 99% of the time, banks will not entertain an escalation addendum - particularly the larger banks. I have known of one situation, with a small bank, where they did accept the escalation addendum.

Usually you just have to make your best offer - the best price that the house is worth to you.

Good luck with your offer.

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Joe Doman, Agent, Ashburn, VA
Sun Nov 11, 2012
-Hey Jignesh- we would need some more details on your specific situation. Overall, on an REO the bank wants minimal contingencies. The bank is going to make you sign and "as-is" addendum regardless if they accept your offer. There are several strategies we use with REO's to make our clients offers stand out from the rest. In Ashburn on an REO you're definitely going to have a multiple offer situation. It depends on the bank with the escalation addendum, they will let you know when you put it in. I would suggest at least an escalation addendum, the home will most likely go for above list price and most likely no seller subsidy to help you with closing costs. In a nutshell the bank wants the highest net price with the least amount of contingencies.

If you would like to hear some of our winning REO success strategies, give us a call at 703-929-5716 or email us at and we can review them with you.

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