Precautions When Buying Foreclosure Properties
According to the National Association of Realtors in Nov. of 2015 they were forcasting a possible Foreclosure Crisis – as we know – many states were already hit – but check out the link to see which States they thought, might be at risk. Foreclosed homes have become somewhat of a popular option for home buyers given the increase in quality of some foreclosed homes, depending on their location. Regardless of the path you’re choosing to take in your home buying experience, odds are you’ll come across a foreclosure and you’ll question it as a viable option. So let’s break down the different elements of a foreclosed home you’ll need to consider before deciding to make your purchase.
In the recent past foreclosures were often left abandoned. However, in the past few years, banks usually repair, renovate or remodel these homes before selling them. They may frequently seem to offer a better deal but the question remains, is this always the case? What if Something is Present that the Bank ‘Fixes‘ – but is NOT REQUIRED to DISCLOSE because they didn’t ‘Personally’ Live in the Home – (This is the position that most banks take).
I have personally gone through properties with clients and we smelled bleach. I called and asked the listing agent who had no idea what I was talking about. We went back the next day – No Smell at ALL ! – Suspicious? – YEA! This was a Bank Owned property and ‘Circumstances’ changed in 1 day? What do I think? I think the bank sent in people to remove mold – and bleach is the # 1 way to kill most of it. However – not having a Proper ‘Mold Inspection’ … on the Property is a big no, no. Proper mold removal and remediation is required if you want to be safe. Since the smell of mold and bleach can be eliminated in one day – you should either walk away from this property or have a proper inspection for mold done, so you have a reason to back out of the deal, if necessary.
Look what may have been Hidden – It should have been removed – by Professionals. – Which would take much longer then a day – in most instances. Tests have to be run, Analyzed and then Remediation and Removal occur … One property was only – 1 day on the Market – we saw it within the 1st hour it was listed! We walked away! Most importantly this would have been disclosed on the Seller’s Disclosure Form … However, as mentioned earlier – a bank sells a property ‘as-is’ and has specific forms that they did not occupy the property, and have no knowledge of its condition. This is one typ of situation you need to be aware of. Compare that to what a ‘owner occupied’ property must disclose – What You Should Disclose When Selling Your Home via Debbie Drummond
So now I have your attention – let’s look at the Pro’s and Con’s of Buying Foreclosed Homes.
They are cheaper
Currently, foreclosed houses are approximately 5-10% cheaper in comparison to equivalent homes which are not in foreclosure even if they are in the same location. Previously, they were 15-20% below the market rate, but the current rates are still a better deal. Over time, the value of the home may appreciate and incase you decide to sell, you will definitely make a profit. However – When Buying a Foreclosed Home – This is where you really must have the best Home Buying Contingencies To Consider Including in Your Purchase Offer via Kyle Hiscock
1) Foreclosed homes are still expensive to some extent
The prices of foreclosed homes (REOs i.e. bank real estate owned homes) have gone up compared to 5 years ago (although still lower than the market rates). Many banks invest their money into renovating these houses with the hopes of selling them at a good price. This is why the prices have gone up, in addition to the fact that there are also huge risks involved. Although you may buy it slightly cheaper than the market rates, you may even find that they are more expensive especially due to all you may have to incur in the long run to bring it up to code with the other homes surrounding it. What it Means To Be House Poor via Paul Sian
2) They may not be in the best condition
In most cases, foreclosed homes are not in very good condition, often requiring significant repairs. Note that damages like; roof leaks, foundation problems, electrical, plumbing, and any other damage that may require major repairs, are usually not disclosed. Remember that prior to the foreclosure the home was owned by someone else. Obviously, that homeowner could not continue making their monthly mortgage payment therefore, more then likely, they did not have the funds to do regular maintenance on the home. Most of the time homes that reach the REO stage of foreclosure are in their worst state. Although you may get an opportunity to do an inspection on the foreclosure home before finalizing the process, they are always sold ‘as-is’, meaning that you cannot request any repairs as in your contingency of the sale. You therefore buy the home at your own risk! You have no recourse after the closing, so if the damages were more extensive then what the inspection found, or items were hidden behind walls for the inspector to see, you are out of luck. This is Why Picking The Right Real Estate Agent Is Critical via Bill Gassett
3) They may be located in undesirable locations
In most instances, foreclosed homes today are located in unattractive areas. Sometimes, the price of an REO may look great because the foreclosure makes it cheap, but you still must consider its location. You may end up having to spend years stuck in a home located in a bad neighborhood because such houses often take a much longer time to sell. Which is why there are many Things To Consider About A Neighborhhood When Buying A Home. via Anita Clark
4) Tough competition
Today, many home buyers are attracted to the foreclosure homes because again they are cheaper. Because of this, the competition for these houses is tough (especially for those located in prime locations). If you are not familiar with foreclosed houses or even the trends in the real estate markets, you may find it hard to get a good home. You could even end up paying a lot of money for an undesirable house, just because there is little or no inventory, this is when you must be patient.
5) Slow process with no guarantees
The process involved in buying a foreclosed home is not only long, it can also be frustrating. Apart from the paperwork, the whole process is sometimes very slow and you may even end up waiting for many weeks before you get a reply on your offer, which ties up your earnest deposit should you find something you like better. Also remember that these homes are owned by the bank , and they will certainly attempt to get a good price to help recover some portion of their loss. Here is where you need to watch very closely … If they get a better deal, your contract may end up being Cancelled – even if you are ready to close Next Week! Additionally – there are many scam artists out there – who you need to be aware of – They promise great deals, on properties they may not even have Title to at all. – How To Recognize and Avoid A Foreclose “Rescue” Scam via Karen Highland
6) Avoiding Foreclosure
Foreclosure is an expensive, hurtful and usually a true devastation in the lives of those involved. So I’d like to point out a great article, for those who may be in the beginning of a foreclosure process – How to Avoid The Sting of Foreclosure via Lynn Pineda
7) Outside the U.S. in Canada
One area that was of great Interest to me was – How are Foreclosures in other Countries done? A really great article that addresses this question is; Pitfalls of Buying a Foreclosure Property via Joe Samson
Here are a few more related articles;
Is Buying a Foreclosure A Good Idea In Real Estate? via Kyle Hiscock
Wendy Weir Relocation – Real Estate Agent, Relocation Specialist, Birmingham, MI
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