We held a seminar 5 weeks ago on "How to purchase a Foreclosure". We discussed what to look for when buying a Foreclosure that the bank won`t tell you. It`s hard to imagine people attempting to place an offer on a "Bank Owned" property without the assistance of an attorney or trained Real Estate Professional.
There are certain aspects of purchasing a Foreclosure that many have no idea what to look for.
The following items below were discussed.
1- Inspection: Prior to making an offer it`s extremely important to conduct a "Full" inspection. Roof, appliances,Air Conditioner,termites,mold,and structural damage need to be carefully checked. Make sure prior to inspection that the electricity is on.Banks sell these homes in "AS IS" condition, meaning once a contract is executed all repairs are your responsibility.
2- Back Taxes: Check with the county in regards to back taxes owed. I can`t tell you ho many times at closing there are "Taxes Owed" which isn`t included in the sales price.
3-Special Contracts or Addendums: Majority of Banks insist you use their contract "To Purchase", I strongly suggest that you`re attorney review these contracts prior to signing.
4- Bank select Title Companies: I always negotiate for the Bank to pay for Buyers Closing Costs. Worst case scenario is the Bank will say no,in most cases, they`re willing to pay a portion of these costs. It never hurts to ask.
5- Repair Costs: I hate the term "Cosmetic".There are times when cracked tile are there for a reason, bad grout,rotted fascia,etc. Have someone who can give you a "Dollar Amount" on what it costs to repair the home you`re looking at. Add that to the actual budget. I like to tell our clients to budget a minimum of $10K towards repairs.
Generally, people who have been Foreclosed are unable to properly maintain their homes. They allow appliances,yards, pools,to be unattended too. Remember it could take 6-9 months for these people to vacate their homes. They`re not putting any money into maintaining these homes, so it`s up to you to investigate.
Before, looking at buying a Foreclosure consider hiring a Realtor who specializes in dealing with the lenders and has access to people who can look at a home objectively and tell you the actual condition. Buying a Foreclosure has it`s benefits,so does hiring a professional to be there every step of the way.
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BB,
We`re working with two potential buyers now.
Thanks for asking.
Scott :
I hope your seminar yields great results. We are also having alot of people buy foreclosures with no representation. It has created a huge dilemna here and more often than not after the fact they are seeking represention for us Agents to sell their home and get them out of the mess they created themselves !
Scott
A very good checklist. Too many consumers are unaware of the potential pitfalls, and blindly look at chasing "bargains" depending on what is owed, foreclosures as you said will often suffer from neglect. Good advise! Thanks for posting.
Melissa,
Buying a Foreclosure on your own without a professional makes litte or no sense.One person told me they thought they`d save the Bank Money,thereby believing they could offer less.
People have no idea "THE BANK" isn`t their friend. It`s a brutal business,which they must clear inventory in order to borrow more.
AS,
Several years ago we were working with a buyer who refused to listen to my advice. We looked at 7 Foreclosured properties,the buyers went directly to the bank, who executed a contract with this person.
The home was sold "AS IS" with roof damage totalling $22,000,termite damge of $5000 and two new A/C units were needed for an additional $6800.
The buyer was stuck, called me crying "I need your help". There was nothing i could do for them.
Lesson learned, i guess.
Great post Scott. If your buyers insist on a forclosure expect to do alot more work. If the buyer has a conventional loan you might get a contract funded. Unless the property is in perfect condition a FHA will never do. Make sure to check the city or county utilities as well as the taxes. I've had a home where the city water was $40K. Just because its a forclosure doesn't mean its a deal.
KP,
VA as well...Many potential buyers refuse to listen to a professional for help.
Even if you check the county or city...there can be a cloud that was not found until the title is checked and you can get stuck with undisclosed liens. Inspections are only as good as the day you do them.
NB,
You need to have some indication of inspection repairs. Doing an inspection prior to writing an offer is crucial...
Consumers need to focus on the home they are buying and forget about the "deal". I've spoken with folks who will only look at forclosed homes. They have the wrong focus, but I also don't give the consumer any credit for understanding the real estate market.
They are, unfortunately, led down the Yellow Brick Raod by agents who sell these homes.
You are absolutely right, the buyer has to be VERY careful. I encourage consumers to look at ALL properties in their price range. If they do that, they'll see that the foreclosure may not be such a good buy after all.
I represent those that buy foreclosures. This is a great list. The one that I need to remember most is to advise buyers to check the TAXES! Thanks for another great post, Scott.
Do you get buyers who don't want to spend $200 on a home inspection???? As is is as is, I want to know what's up with the property before I buy....and I always recommend buying owner's title insurance on a foreclosure. Great Post!
Debbie,
We have issues like that as well.
I always tell them it`s the best $200 they`ll ever spend.
Majority understand..
Great useful tips! We haven't seen many foreclosures yet in our area, but they will be coming.
Good advice on buying foreclosures, Scott. I am putting together an Investor Workshop on Short Sales and have written a post asking for others to submit their ideas. If you get a chance check out the post.
http://activerain.com/blogsview/194035/Short-Sales-FAQ-What
Have you conducted any seminars on "Short Sales"?
Great post! I find that there are so many people looking for that great deal that when it comes down to it they often forget about the common sense stuff so it a great idea to point out some of the potential pitfalls and what to look for.