So you are looking for a new home, maybe even your first home, and you come across a house that is in a bank’s name and you are told it has been foreclosed. The price is incredibly low and you are wondering, what is the catch? A foreclosure can be a good investment for a buyer. Unfortunately it was not a good experience for the homeowner. A foreclosure is when a homeowner loses the rights to their property due to the failure to pay their mortgage and the property is reclaimed by the bank. Once the homeowner involuntarily loses their home, the house becomes the bank’s property. Sellers can go into foreclosure for multiple reasons such as, job loss, excessive debt or personal issues with health or divorce.
Although the money may be right and you are considering a foreclosure, you should do some research first. Here are some tips to consider before buying a foreclosed home.
How long has the house been empty?
The longer a home has been vacant, the more likely it is to have damages. Empty houses can suffer from broken water pipes, stolen copper plumbing, damaged appliances and even mold are just a few examples of the potential problems that may await buyers of vacant properties. All buyers are encouraged to get a professional home inspection prior to purchasing.
Has the homeowner damaged the home?
Homeowners may neglect routine maintenance on the home for months especially if they know they will be removed from the home sometime in the future. Other times a homeowner may strip a property of valuable fixtures that should have remained with the home such as kitchen cabinets, wall-to-wall carpeting, interior doors, etc. There are a few homeowners who will even vandalize the property prior to leaving by putting cement down the drains, large holes in the drywall, etc. On the opposite end of the spectrum, there are some foreclosed properties that are in good condition. Either the homeowner took care of the property right up until the time they vacated or the bank made repairs to the property prior to putting it on the market. It is a good idea to view a foreclosure in person prior to purchasing as well as having a professional assist with accessing damages that may not be easily seen.
What kind of offer should I make on a foreclosure?
The main reason buyers shop for a foreclosure is to get a bargain but it is not always that easy. If the home is in a desirable location, there will be multiple bidders, leaving the home to sell at or near the market value. You can still have the benefit of two things working in your favor: the bank is not emotionally attached to the home so there is no irrational expectations about price and the bank loses money every day the house sits on the market. Something else to consider is that the market value will increase once you make renovations to the property. Remember, the home’s real cost is the money you pay the seller plus what you will need to spend on repairs and renovations. Set a firm maximum price that is within your budget and near the property’s actual value and be prepared to walk away if the bank does not accept it.
Should I invest in a foreclosure?
As you can see, there are pros and cons to investing in a foreclosure. Working with a professional real estate agent can help you select an ideal property that is right for you and assist you in navigating these new waters. Obtaining a licensed contractor’s estimate of the repairs needed prior to purchasing is advised as well. Once an offer is accepted, a professional home inspection contingency is key to insure the needed repairs are identified and accounted for. Contact a Realtor today to discuss purchasing a foreclosure!