Do You Know What the Bank Addendum REALLY Says?
If your offer on a bank-owned or short-sale property is "accepted", you will receive the bank's addendum to sign. Many buyers (and their agents) just skim through it, sign on the dotted line and send it back to the listing agent. But they don't truly understand what the addendum says nor how it could affect them.
Some say, "It's just an addendum. The original sales contract has been accepted and those terms are what count."
The bank's addendum always has language in it that says something similar to, "This addendum supersedes the terms of the contract of sale and all other addendum." or "In the event any provision of this addendum conflicts in whole or in part with the terms of the contract of sale, the provisions of this addendum shall control."
In layman's terms…the bank's addendum trumps any and all terms of your original offer which you thought the bank "accepted" and "agreed to".
Some of the most commons things in the sales contract that are trumped by the bank's addendum are
- contingency time frames
- inspections (or lack thereof)
- termite inspection/remediation
- closing cost assistance/concessions
- transfer taxes/tax stamps
- HOA assessments
- real estate broker commissions
All of these could potentially have a big financial and legal impact on a buyer. Every buyer should fully understand what the terms of the bank's addendum really say and mean.
Let's look at an example…
Let's say you put "10 days" for the financing contingency, but the bank addendum says "buyer's time frame for financing contingency is 5 days". You don't notice and your agent doesn't notice. You, your agent and, more importantly, your lender doesn't notice. Your lender thinks he has 10 days to get final approval on your loan and is working on your loan accordingly.
On day 7, your lender comes back and says, "Sorry, the underwriter found some things they weren't happy with and wouldn't approve you for a loan." You immediately call your buyer's agent and say, "I couldn't get final approval so get me out of the contract using the financing contingency."
Your agent calls the listing agent to get you out of the contract only to find out that you are S.O.L. because the financing contingency is only 5 days per the bank addendum (which you signed 7 days ago). You've gone from getting out of the contract to forfeiting your earnest money deposit.
(This actually happened to a buyer who had a ratified contract on one of my friend's/fellow Realtor's listings)
Btw…If you're wondering whether you can change or counter and of the terms of the bank addendum, the answer is "no". If you want to buy the property, you have to agree to the terms as they are.
If you don't like the terms, feel free to back-out and look for another property. But all bank-owned and short-sale properties have bank addendums that all pretty much say the same thing using different fancy words.
So next time you go to buy a bank-owned or short-sale property, make sure you have a buyer's agent that knows what they're doing and that you read the bank addendum carefully and in its entirety. If you don't, you could get burned badly.