Find a Real Estate Specialist
Not all real estate agents have dealt with foreclosed homes or know how the process works. When looking for an agent, you want to work with someone who has a solid history of closing deals on foreclosed properties. This ensures they know how to complete the paperwork accurately and how to advise you correctly. One of the first questions you should ask an agent is how many foreclosed homes they have helped buyers purchase.
Avoid Common Mistakes in Buying a Foreclosure
Many buyers don’t know much about buying a foreclosed property, except that it is often a good deal. What they don’t understand is how complex this process can be or how many people regret their decision to buy a foreclosed home. Foreclosures can be a wonderful way for buyers to find their dream home at an affordable price, especially if they are first-time buyers. The key is to avoid common mistakes in purchasing this type of property.
Your agent should be able to guide you through the process and avoid the pitfalls that plague many buyers. However, it’s beneficial to know what common mistakes people make and how to avoid them. The following power point presentation gives five mistakes that happen in purchasing foreclosed properties.
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Why an Inspection is Essential for a Foreclosed Property
While a home inspection is recommended for all home purchases, it is even more important for foreclosures. The seller won’t know the history of the home or how well it had been maintained. In most cases, the home will not have been adequately maintained and some repairs will be needed. A home inspection will relay that information to you.
You are Responsible
You will be responsible for any repairs that need to be made. When you get the home inspection report, you can review it and make a list of all necessary repairs. Price each repair with two or three contractors to determine how much you will have to pay for everything. Add this to the price of the home to figure out if the cost is at or below the value of the home.
Once you have your calculations and estimates, you can determine if the property is still a good deal or if you should walk away. Keep in mind that the inspection may not uncover everything and you are likely to find more problems as you begin working on the known repairs. It’s a good idea to save more money than you think you’ll need in case of unexpected issues.
The Differences in Buying a Foreclosure and a Traditional Home
In many ways, the two types of properties are the same. You still have to get approved for a loan, put in an offer and go to closing. However, within those time frames, you will have several differences.
First, the property condition may be unknown. You may not have any record of repairs or maintenance. A seller’s disclosure may not be included with the property. To compensate for this issue, you’ll want to have a home inspection completed.
Second, title issues are common with foreclosures. Many times, the title company discovers an undisclosed lien against the property that must be dealt with prior to closing. While most of these issues can be resolved, they often delay closing.
Third, you may have to wait for multiple approvals. The bank will have to sign off on your offer, but there may be another investor who must also agree. The result is a longer time between submitting an offer and hearing back from the seller. If the price is negotiated, the wait time will increase.
Paperwork is another issue with foreclosures. In many cases, everything has not been completed properly when the original lender sold or transferred ownership to another entity or to an investor. Often the problem isn’t noticed until the property is attempting to be sold. In extreme cases, the paperwork is missing entirely. To avoid this issue, it’s important to work with a real estate agent who can help you determine the owner of the foreclosed property and avoid the hassle that comes from lost paperwork.
What You Need to Know About Buying a Foreclosure at an Auction
One way to purchase a foreclosed home is through an auction. This type of transaction is vastly different from buying a traditional home. It’s helpful to understand the requirements and the issues so you can be prepared if you choose this route.
With an auction, you are agreeing to purchase the home “as-is.” You can visit the property before the day of the auction and even take someone in to inspect the condition. In fact, it’s essential that you follow this step so you know what you’re getting into. Take this time to calculate repair costs so you know how much to bid on the property.
Some auctions have no minimum bid requirements, but many will place a limit on how low the bidding can go before the lender gets the property. Make sure you know the details to ensure you have a reasonable bid.
Know the Location
Most auctions are held in a public place, such as a county courthouse. The property you are interested in may be one of several auctions taking place on the same day. Make sure you know the exact time to ensure you don’t miss out. In some cases, you may participate in an online auction, which takes place over a period of time with all of the interested parties submitting bids privately. Since you don’t know what everyone else is bidding, you will have to guess at the best price to be the high bidder.
Know the Bidding Procedures
Bidding procedures can differ by state. Some will require you to have a cashier’s check for the full amount while others require only 10 percent with the remainder to be paid in a certain time frame. You can find out this information when you talk to a real estate agent. They will know the laws applicable to where you live.
Know Your Bid Amount
Decide ahead of time your maximum bid amount. Otherwise, you can get caught up in the process and bid more than what you can afford or what the property is worth. You may want to check out other auctions to see how things went. It’s a good idea to visit another auction and see it happen in person to make you feel more comfortable with the process.
Is a Foreclosure the Right Option for a First-time Buyer?
Foreclosures are not as complicated as they seem. In fact, they have some advantages for first-time buyers. However, there are also a few warnings that buyers should consider before deciding to go this route to homeownership.
A Good Deal?
Many buyers equate foreclosed properties with a low price, but this is not always the case. In fact, most foreclosed homes are priced at fair value. Buyers can’t expect to get the home with a below-market offer. If they happen to find one priced low, they need to proceed with caution. It’s likely priced that low to compensate for needed repairs.
Don’t Go It Alone
All buyers interested in foreclosed properties, but especially first-time buyers, should work with an agent who has experience in foreclosures. They can provide valuable information to navigate through the process and help put anxious first-time buyers at ease. They can advise on pricing and help find a good inspector and even interpret the inspection report as it relates to costs.
Buyers looking at a foreclosed property must consider the entire neighborhood. If the home is the only foreclosure on the market, they can expect values to still be fair. However, if the property is in a distressed area with other foreclosures, home values may decline. Buyers should plan to stay in their home until the value rises and they can gain some equity. Otherwise, selling in a few years may be difficult.
A foreclosure is a viable option for any buyer, but they must know the pitfalls to watch for and what to expect in the process. A real estate agent can help them make the best decision about pursuing a foreclosed home.