Kenneth Belferman

Buying Foreclosures in the Pittsburgh Area

PART 2 OF 3 - BUYER'S COSTS

This is part 2 of a 3-part series dealing with issues to be aware of when considering the purchase of a foreclosed property. This article will address the topic of buyer's costs.

In a foreclosure situation, some of the costs that are normally paid by the seller are passed on to the buyer. These costs may include:

Full amount of Transfer Tax
Dye test
Occupancy permit inspections
Turning on utilities in homes that have been winterized (if applicable)
De-winterization and re-winterization of the property (if applicable)

The seller will normally supply the buyer with addendums to the sales agreement which will indicate what each party will be responsible for in terms of costs and other matters related to the sale and closing. These addendums will usually override the related terms of a standard agreement of sale.

You should review these addendums with your real estate agent or lawyer before putting your final signature on a sales agreement or the addendums.

What follows is a worse-case scenario of the additional costs for buyers. Each seller will differ as to the terms of the sale so be sure to read the addendums.

TRANSFER TAX

In the State of Pennsylvania, conveyances of real estate are taxed (gee, what a surprise!). The tax rate varies from area to area and is based on the final sale price of the property. Below are some examples of transfer tax rates by area:

City of Pittsburgh - 4%
Monroeville - 2.5%
McKeesport - 3%
Murrysville - 2%

Most areas of Allegheny and Westmoreland Counties have a transfer tax rate of 2%.

Normally, the buyer and seller will split this cost, although this can be negotiable. In the case of a foreclosure, expect to pay the full amount.

DYE TEST

Many areas (not all) require a dye test for a property before it is sold. The purpose of this test is to make sure that any water run-off on the property is not going into a sanitary sewer system.

Normally, the seller pays for this test, which could cost anywhere from $100 to $250, based on the requirements of the municipality in which the property is located. Any repairs necessary to comply with the dye test ordinance are negotiable between the buyer and seller. If problems are found, repair costs can be reasonable (under $1000) or significant (much higher).

However, with a foreclosure, be prepared to at least pay for the test. You may be able to negotiate repair costs.

OCCUPANCY PERMIT INSPECTIONS

Some areas require an occupancy permit inspection to make sure a property is in compliance with local safety and health codes. When required, the seller usually pays for the inspection and often will pay for repairs to meet compliance, as the property cannot be sold without the permit being issued.

With a foreclosure, be prepared to pay for the inspection. Cost will vary by area. Repairs may be negotiable.

TURNING ON UTILITIES IN HOMES THAT HAVE BEEN WINTERIZED (IF APPLICABLE)

When a property is foreclosed, the seller will usually turn off all utilities and have it winterized to prevent water from freezing in the pipes during the winter. As water expands when it freezes, pipes could crack or burst if not properly winterized.

With a foreclosure, the seller will usually require that the buyer pay to have the utilities turned on. The utility company may waive this charge under certain conditions. You should be aware that the seller will usually hold the buyer responsible for any damage that may occur when the utilities are turned on.

DE-WINTERIZATION AND RE-WINTERIZATION OF THE PROPERTY (IF APPLICABLE)

The seller will usually require that the buyer pay all costs for de-winterizing and re-winterizing a property for the purpose of home inspections. Expect the cost for this to be around $250.

That's a basic run-down of the additional costs you can expect to incur in the purchase of a foreclosed property. Again, responsibility for these costs can vary.

Ken Belferman can be reached at 412-372-1050 x340, by e-mail, or thru his web site at http://www.pittsburghhomesrus.com

Buying Foreclosures in the Pittsburgh Area

Part 1 of 3

Purchasing a foreclosed property has become an attractive alternative to buyers now that money is tight and the number of foreclosures has increased. Seasoned investors know how the process works; people who are new to this and purchasing a home as their primary residence - especially for the first time - or buyers who are considering getting into investing, may not be quite as savvy.

The purpose of this series of articles is to help buyers make an informed decision as to whether or not a foreclosure is the right choice for them. The topics I'll be covering include:

Part 1 - Condition

Part 2 - Buyer costs

Part 3 - Pricing

These articles are not intended to be exhaustive of the subject matter but to give a general overview and they address the most common scenarios. Remember - in real estate every transaction is different in some way.

Before diving in to this subject, let's define a foreclosure. A foreclosure is a legal procedure in which property pledged as security is sold to satisfy the debt. This procedure passes title to the property to either the person holding the mortgage document (bank, mortgage company) or to a third party who purchases the property at a foreclosure sale.

A foreclosed property can be purchased by anyone at a foreclosure sale (also called a sheriff's sale or auction), but that's a riskier venture and is a topic for another article.

Condition

Foreclosures are almost always sold as-is. This means that the seller, in most cases, will be willing to make very few, if any, repairs on the property.

Another thing to keep in mind is that whereas in a normal property transaction (not a foreclosure or estate sale) the seller will provide a document disclosing his/her knowledge of any problems with the home, in a foreclosure this is not the case. The bank or mortgage company holding title will not have lived in the property and therefore will have no knowledge of the physical history of the property or of any current problems. In other words, the seller's disclosure will be blank. This is where the buyer needs to exercise due diligence in having the property thoroughly inspected. Cosmetics (paint, carpeting, plastering, missing plumbing and electrical fixtures, landscaping, etc.) can be the least of the problems.

Buyers should always elect to have a home and pest inspection performed as part of the contingencies of purchasing any property. In most cases, these inspections will be required by a lender. If you're paying cash and have extensive experience in construction and knowledge of home systems, hiring a home inspector may not be necessary.

However, home inspectors are trained in the thorough examination of all systems and the structural integrity of a home. If there's any area you feel you don't know enough about, don't chance it - hire a trained professional! Additionally, the recent concern about radon exposure may inspire you to have a radon test performed as well.

Some of the more common areas of concern I've seen in foreclosed properties include termites, plumbing, electrical, heating (furnace), structural damage, and mold.

In the Pittsburgh area it is not uncommon to find water intrusion problems, especially in older homes. This is how mold starts. While you may be able to solve some minor mold problems with Clorox and elbow grease, there is no way to be certain without consulting someone who is certified to determine the type of mold present. Some types of mold are highly toxic and will require professional mitigation.

Another problem that is becoming more common is the theft of copper plumbing. As the price of copper rises, so does the incidence of theft. Homes that sit vacant for extended periods of time, as foreclosures often do, become more prone to vandalism, especially if the home has not been thoroughly secured.

If the copper plumbing is stolen, the seller may offer to have it replaced - but is not obligated to do so. If the seller does not replace the missing pipes, this adds a problem to the purchase, as the plumbing system will not be able to be adequately inspected.

Electrical problems can run the gamut from inadequate or poor quality wiring to outdated wiring, i.e., fused panels or knob-and-tube wiring on some older properties. While this type of wiring can still be perfectly functional, some lenders will not approve a loan without having the wiring updated and making sure it is up to code. It may be difficult or more expensive to purchase homeowner's insurance as well. This situation can apply to the purchase of any property.

Generally speaking, the condition of foreclosed properties tends to be poor to fair. This doesn't mean that you can't find one that will need a minimal amount of work - just expect to pay more for it.

Ken Belferman can be reached at 412-372-1050 x340, via e-mail, or thru his web site at http://www.pittsburghhomesrus.com.