Buying a foreclosed home is becoming a trend in the market. Along with its rise are worries about the risk that comes with the purchasing process. Last month’s survey said that 49 percent of Americans were somewhat likely to think through purchasing a foreclosure, up 4 percent from 45 percent in May 2010. However, the number of US adults who thought there are downsides to purchasing foreclosures had also risen, from 78 percent to 81 percent over the same period. They had a lot of fears about buying a foreclosure, but the biggest concerns were:
- Purchasing foreclosures comes with hidden costs.
- The purchasing process itself is precarious.
- Foreclosed homes might continue to lose value, after escrow closes.
Although risks are inevitable when buying a foreclosed home, the most perilous way to do it is also the most unusual method: at the foreclosure auction itself. Auction buyers, more often than not, do not have the chance to fully assess the foreclosure to ensure that they are getting clear right and/or to make sure they’re not getting something worthless. That being said, most foreclosures are not being resold at the auction, but as a Real Estate Owned [by the bank], listed by a broker on Multiple Listing Services.
When you purchase an REO in this manner, chances are, you have lots of opportunities to pull off some tricks of the trade, to fend off some of the traps you may fear. Here are some ploys and traps for foreclosure buyers:
- There is there, that is that. [Usually,] banks are not known to spark interest in executing fixes on your home. Most of these homes are handled by an asset management company in a different state, and may not even have a local person aside from the broker who can take care of major repairs. Simply put, bank owned homes are sold on a very constricted “as-is, where-is” manner, which simply means that you must anticipate to take hold of it, if you purchase it, in exactly the position and location it is, no matter how impaired. You cannot view a less-than-adequate foreclosed property, and make an offer for its flaws, assuming you’ll be able to get the bank to “fix” it later. If the bank intends to do any fixes to a foreclosed home, they do so when the listing agent says so, before the home is listed.
If the foreclosure you are considering has apparent major damage, have your contractors stop by with you or collect whatever data you need to get as complacent as you can with your offer price, assuming that the bank will not help with anything regarding repairs, before you make the offer.
Click Here to View All Carmel CA homes for sale! - The bank does not rat out their evil. Fact is, when it comes to real estate disclosures, the bank tends to shy away. Many states grant banks and other types of corporate homeowners immunity from making essential disclosures regarding the condition of the property. Even when not legally exempted, most banks will just write across the required disclosures something that translates as “the bank has no knowledge of the home’s condition.” (You may think it’s unfair, but before you object, remember that the bank never resided in the property, so most often truly does not have idea of any significant details about its state or location, the data an average seller would be asked to disclose.)
Even in a regular transaction, it requires a buyer to be painstakingly careful in having the home inspected and keen about reviewing the turned out inspection reports. But purchasing foreclosure ups even that ante, as you have no seller disclosure to play up specific problems you should have checked out, and none of the common legal refuge you would have if a regular seller made incomplete disclosures. Get a thorough property inspection. Have it inspected for pests, have the roof inspected, have the sewer line inspected, and have the pool inspected (if you have a pool and is concerned about its condition).
All these reassessments require you to shell out significant amount of money, but the hassle each of them can keep you away from is worth it. Do not forget to go over your state’s buyer inspection advisory, so just to make sure you are in the know of all the reassessments that are available to you and collaborate with your broker to decide which ones are sensible, and which are not.
Some insider tips:
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- Utilities of untaken foreclosures are often turned off. Collaborate with your agent to make sure the utilities get turned on – even for a day – so that your property inspector can run the water taps, check the stove and dishwasher, check if the water heater and electrical outlets are work properly, and so on.
- If appliances are there, the bank will most likely leave them there, albeit technically, they may not have “legal” ownership of them, so they may not be included in the contract, unlike in a regular home sale.
- However, the bank “will not” guarantee you any kind of warranty on appliances, so try to get any warranty coverage you need somewhere else – from a home warranty company or, if possible, the original manufacturer.
- The contract terms are subject to change without prior notice. Local market standard practices are one thing entirely in the area of expertise of real estate pros. From bargaining practices to which party pays which closing costs, each market is distinct, and been around local brokers are very capable on this information. If you’re purchasing a foreclosure, though, the bank will often ask you to utilize its own purchase contract, instead of the more traditionally used state forms. A lot of times, this is done to make known to buyers of the bank’s unwillingness to make essential disclosures and to change some of the regular practices for your locale to the bank’s standard practices.
Case in point, if you are purchasing a home in a contingency state, where you would usually have to sign a document eagerly releasing contingencies, the bank’s contract will most likely change that, so that your transaction functions on an objection period. In “objection” based transactions, you have a definite time period in which you shall either raise your issues with the property and/or cancel the deal, or you will automatically be considered to be going forward with the undertaking and your deposit money will be void should you change your mind after the given period.
If you’ve bought homes before and you think you know the ropes, it doesn’t hurt to think otherwise and read verbatim the contract you sign when you buy an REO, and ask your agent, broker or attorney to explain anything that doesn’t fit. - Brace yourself for the bad, the worse and the worst. When you purchase a foreclosure, you might turn out working with the bank’s escrow company, as opposed to the company you or your agent chooses. And the bank’s escrow provider might be tedious and unsystematic. The bank might hurry you for your deposit money, but take their time and keep you waiting for the necessary signatures on their part to settle the deal. That is normal [but not necessarily acceptable]. You might anticipate that the bank would be on their knees for buyers, and instead realize that there are numerous offers for the same REO. Or, you might be the only offer and still get your bizarrely low offer cast aside, only to have the bank cut the list cost of the property to the same cost of your offer.
The purchasing process is full of glitches. Expect your timetable to be wrecked, expect the bank to be stiff and absurd. Asking your broker or agent to give you a brief on the usual dilemma they see in REO transactions is not overkill. If anything, the briefer will help you have realistic expectations and prevent you from losing it.
