Things to Consider When Buying a Foreclosed Property

Foreclosed properties can be a great way to buy a home at a low price but it’s not for everyone. Here are some things to consider:

Foreclosure Auctions

Attending and buying a home through a foreclosure auction is best left to professionals - there can be a lot of risk.

• Typically, the home cannot be inspected prior to buying. If you cannot hire a home inspector or contractor to review the home you will not know the true condition of the home or systems such as heating, water, or electrical. There may be additional damage that is not visible such as mold, damaged pipes or chemical spills especially if the home is vacant.
  
  
• You also may not be able to determine if there are liens against the property that are senior to the mortgage such as unpaid property taxes.  Remediation of any of these items can be expensive.
  
  
• If the current owner is still living in the home when it is auctioned you may have additional issues evicting the former owner and the potential for vandalism. It is not unheard of for current owners to trash the home before leaving.
  
  
• Review the deed, is there anything on the deed that you find objectionable?
  
  
• You will need to pay cash for the home.

REO or Bank owned property

REO or real estate owned simply means that the bank is in possession of the property through a foreclosure process.

• The bank is responsible for evicting the current owners and making sure that back taxes and liens are paid.
  
  
• You can schedule a showing of the property and hire an inspector to advise you. You can hire contractors to view the property and advise you about costs and repairs prior to making an offer.
  
  
• Title issues can delay the closing and you taking possession. Most banks do not place a home with a real estate agent until they have actual title and a deed to the property but sometimes that process is delayed.
• Buying REO property is not a quick process. If you need to move by a specific date this may not be an option for you. You need to be flexible in your timing.
  
  
• Lastly, there may be little to no room for negotiation with a bank. On the upside – the bank has no emotional attachment to the home and has no unrealistic expectations about price and every day they own the home they are losing money. They are motivated to sell.

What can you do to help make the process easier?

• Get pre-qualified – when the bank entertains offers, the stronger offers with pre-qualifications will become their first choice. Understand what you have in earnest money and have a budget for needed repairs before looking. Know what loan options are available to you. Make sure the lender understands you are looking at bank owned properties so they can advise you about your loan options. Understand the home condition requirements for the type of loan.
  
  
• Expect the home appraisal to be low. Foreclosures generally have lower appraisals than similar properties due to neglected maintenance and vandalism that may have occurred.
  
  
• You will spend more on initial maintenance. Foreclosures are generally sold “as-is”; make sure you have the budget to make the needed repairs or that you are able to secure a renovation loan for the repairs. You may also need to make unexpected repairs. The bank will not make needed repairs and is unlikely to lower the price to enable you to make those repairs; they are already selling at a loss.
  
  
• Be prepared to walk away when the deal just isn’t right for you. Know beforehand what is acceptable to you and what you are not willing to do. Do not become emotionally invested in a home that may not work out.
  
  
• Be prepared to spend money on home inspections for homes you may not end up buying. Consider this a cost of research for the right home – if you do not end up buying that property because your offer was not accepted or because the home was just in terrible shape you cannot consider it money thrown away. Its money well invested.
  
  
• Know what similar homes are selling for. Do your research on the area. Your buyer’s agent can help you with this.

Norma Karle is a REALTOR with Berkshire Hathaway HomeServices Verani Realty.  Norma services buyers and sellers throughout Central and Southern NH.