I get a lot of calls every day from buyers who want to purchase foreclosed homes. After speaking with them for a few minutes, I realize that they really have no clue about what is really involved in purchasing a foreclosure.
With so many foreclosed homes on the market today its no wonder that so many buyers are thinking about purchasing one.
Buyers think that because the home was foreclosed on, that it just has to be a great buy. Not always the case.
I have been working with bank properties for all of my career and I can tell you lots of stories about foreclosed homes but I digress. I want to concentrate on what you should know before you venture out there.
Foreclosed homes are not always in great shape in fact, expect that the home will need repair, sometimes a lot of repair. When people are losing their homes, they tend to do lots of damage to the home. It’s just the way that it is. Expect that the utilities will not be working. Banks do not like to put utilities in their name. Sometimes they have the Realtor put them into their name but I never liked to do that so I am certain many other Realtors feel the same.
Do realize that you will be buying the home in “as is” condition. Now, do not get confused, though you are buying a home in “as is” condition, that does not mean that you can not negotiate with the bank. I do it all of the time. Generally, these homes have been sitting vacant for a long time and nobody has kept up with maintaining the home so the home could have termites, mold, leaks, a bad roof, broken windows etc. Understand that banks do not want to negotiate or issue credits to you and that is why you need an aggressive, experienced Realtor who knows how to work with banks.
You can have a have a home inspection but keep in mind that you will be responsible for paying the inspector and any repairs that are needed. If you need to purchase as an FHA buyer, you will be responsible to make all repairs prior to settlement and that could wind up costing you a lot of money even before you take possession. Generally, if you need to purchase as an FHA buyer, I always advise my clients NOT to purchase a foreclosure.
If you do not have money for a down payment and closing costs, buying a foreclosed home is not for you. The bank will want to see how much money you have. If you are needing to scrape together enough money just to get to the table, you will be getting in way over your head. Remember, you are buying someones home who got in way over their head. You certainly do not want to end up the same way. There will probably be other offers and the bank will be looking for the strongest.
You will have no history of the home. If an investor purchased the home for a low price and used cheap materials and then was forclosed on which does happen, you may have future issues down the road. You get no disclosures with a forclosed home as you would from a home owner who is selling their home.
The bank will operate on their own schedule and not yours. In a traditional sale that involves a seller, there is usually a respond by date to allow for the seller to review your offer and make a decision. Banks DO NOT operate in the same way. They could get back to you in a day, a week or even a month which I have seen them do. If you are looking to be in a home by a certain date, buying a foreclosure could change your plans.
Make sure to have some place to stay because you may not be able to move in until after you have made the necessary repairs.
Foreclosed homes can be a way to get into a home at a reasonable price but you do need to do your homework and have the money and time to put into it. You should find yourself a buyer agent who is experienced in dealing with bank properties and not a Realtor who is a wallflower. You need an aggressive Realtor who will fight for you. You are buying someone else’s problem. Someone who could not afford to pay their mortgage or make the necessary repairs to the home. As long as you realize that going in, you will be ahead of the game.
With home prices being so incredible right now, you may just be better off buying a home from a traditional seller and knowing exactly what you are buying and not having to worry about making all of the repairs, putting out extra money and you may even get a better deal without all of the stress.
I hope I have given you some things to think about prior to starting your home search. It’s better to be safe than sorry rather than kicking yourself or blaming everyone else after you’ve purchased your home.