Foreclosure homes are not usually at the top of most home-buyers wish lists, but many are willing to consider the option once they learn about the potential benefits that can go with buying a foreclosure or short sale property. If you have so far ruled out looking at foreclosed homes because you think they’re all trashed, unsound money pits, you may want to reconsider.
Today’s housing market is unlike anything home buyers have seen anywhere in the U.S. in decades. Ever since the housing bubble burst in 2008, tanking the economy and escalating unemployment numbers nationwide, a record number of U.S. homeowners lost their homes to foreclosure. So why, you ask, risk investing in a bank-owned home that was sold in distress?
When you begin the house hunting journey, whether you’re a property virgin or an experienced buyer, it may not take long to decide that the home you want may be out of reach financially. More house shoppers are looking at foreclosures as an opportunity to get the best bang for their buck in a tight housing market. The prospect of finding a viable foreclosure with good bones in a desirable neighborhood at a price you can afford should make the prospect worth checking into at the very least.
Whatever misgivings you may have about foreclosures, set them aside long enough to ask your real estate agent about the pros and cons. Keep an eye open for these so-called distress sales and chances are you may find a great property you’d otherwise have passed over if you refused to consider foreclosures and short sales. In this tight market, it only makes sense to keep your options open.
What are some good reasons to consider a foreclosure or short sale property?
While there can be some risks in purchasing a foreclosed property, a determined home shopper can have any property they’re interested in inspected, retrieve public records on its history, and end their search with a great house at five to 15 percent below current market value!
Many home buyers who are willing to include foreclosure properties in their home search end up finding a home that meets or exceeds their expectations, a home that they may never have known about had they refused to view foreclosures. Remember, not all foreclosure homes are damaged or neglected either. Many homeowners who found themselves forced to foreclose on their million dollar (or multi-million dollar) homes keep their properties in excellent condition right up to the time they moved out.
Be proactive to minimize any risks.
If you’re looking for a house in a high-end community or a desirable school district where inventory is tight, a foreclosure home may present a perfect opportunity for you. Talk to your real estate agent about the different ways you can go about mitigating potential risks by checking on past building permits to make sure everything was built legally. When it comes to bank-owned foreclosure properties, any fixes a house may need to bring it up to code may already be known to the seller.
Fixable issues can sometimes provide you with leverage at the negotiating table too, so rule nothing out until you have the full story. If the roof needs replacing, you may be able to negotiate that expense with the seller. If the furnace is on its way out, or bricks are missing from a walkway out front, often sellers will either lower the home’s price to provide you with the money to fix the problem, or they will fix it themselves.
Have the home inspected thoroughly by a licensed home inspection professional before you have time to fall too deeply in love with it. A home inspection is one of the best tools you can use to find out if any serious issues exist, such as extensive dry rot, mold, or other problems that can be expensive to fix.
If you can, go ahead and knock on the doors of a few neighbors who may be able to offer you additional information on the home, the neighborhood, or the previous owners. First hand accounts like these may be helpful in making a decision.
Check out the home’s previous sales record through the tax collector’s office. Many times a homeowner has tried to sell the property once or twice before; you can review the home’s sales history and find out if there was a contract on it in the past that the buyer backed out of. If so, there’s a good chance that an inspection report already exists, which can tell you if any potential buyers changed their minds because of problems discovered in the inspection. Your real estate agent may be able to call the previous listing agent to find out more about the property’s listing history.
Be on the lookout for hidden values.
You may find a great home with absolutely no problems in foreclosure or subject to a short sale. The bank has discounted the home because it sells such properties “as is,” and it behooves banks to unload foreclosure properties as quickly as possible without disclosures. You can do your own homework on the property and use the situation to your advantage. If you discover a major problem with a foreclosure house that you want to buy, the banks will likely negotiate a lower price.
Remember, banks are not in the home ownership business, they simply want to move foreclosure properties as quickly as possible. If you’re a qualified buyer and eager to close, the bank will be motivated to work with you.
Since banks relinquish all liability when they sell a foreclosure property, your only line of protection against the financial burden of a major problem surfacing after you’ve closed is to find out everything you can about the house before you sign a contract. Lenders must approve the sale, since essentially the owner (bank) is attempting to sell for less than the approved loan amount. Unfortunately, banks are foot-draggers when it comes to approving short sales and foreclosures, often leaving buyers in the lurch for weeks or even months before they decide whether or not to accept a bid. While buyers wait in this state of limbo, they miss out on other available properties that become available in the meantime.
Buying a foreclosure certainly has pros and cons but if you ask for your realtor’s advice, come prepared to wait and are willing to do your part researching the home’s history and paying for a thorough inspection, you very well may walk away with your dream house at a great price.