When the housing market crashed, millions of homeowners found
themselves underwater on their mortgages. Many were forced to sell their homes or risk foreclosure. If you’re looking at buying a home that has recently gone through this process — a foreclosed home — there are things you need to know before making an offer. These homes are often cheaper than others on the market and can be great bargains for savvy buyers willing to do their homework beforehand. However, as with any home purchase, there are risks involved with buying a foreclosed property. Knowing what they are will help you decide if this is the right kind of home for you. Below are some helpful tips if you’re thinking of buying a foreclosure property – and some red flags to watch out for:
Know the warning signs of a foreclosure property.
If you’re considering buying a foreclosure property, you’ll want to be on the lookout for warning signs that the listing agent may not have disclosed. The first thing to look for is whether there is a trustee’s deed or trustee’s sale notice on the property. A trustee’s deed is a notice filed by the lender when the homeowner is behind on payments. A trustee’s sale notice is filed when the homeowner defaults on their mortgage. If you see one of these notices, it does not mean you should rule out the property. It does mean you should proceed with extra caution. Make sure to do your research and talk to an attorney to understand the full scope of the situation.
Foreclosure properties are sold “as is”.
Most foreclosures are sold “as is”. That means you are buying the property in its current condition with no promises that anything will be fixed or changed. It also means no one will be responsible for any pre-existing issues. To protect yourself, hire a home inspector to look for issues like a faulty roof, high radon levels, or termite infestation. You can also check the property records to see if there are any outstanding issues with the home. You also want to make sure that all utilities are in the homeowner’s name. If not, you’ll have to figure out who to pay, which could lead to added expenses and headaches.
Only licensed real estate agents can negotiate for you.
Unlike the process for buying a typical home, you cannot negotiate for yourself on a foreclosed property. Only a real estate agent who is licensed to sell foreclosed properties can negotiate for you. Be sure that person is working on a commission basis, not a fee basis. A fee-based agent is working for the seller, not you. If you’re working directly with the homeowner, you can ask them to put the offer in writing, but you don’t have the same legal protections as you would with a licensed agent.
Your offer is just the beginning of the negotiation process.
You should expect that the homeowner’s agent will try to come up with a better offer. They want to win the bid and get their client the most money, just as you want to win the bid and get a good deal. Once you make an offer, the agent will likely go back to the seller and try to get them to accept a higher price. He or she will try to get the seller to take whatever offer they can get in order to unload the house as quickly as possible. Once you make an offer, the seller’s agent will likely go back to the seller and try to get them to accept a higher price. They want to win the bid and get their client the most money, just as you want to win the bid and get a good deal.
Foreclosure homes are usually NOT in great condition.
Keep in mind that even if you get a great deal on a foreclosure property, it may need extensive repairs. This is particularly true if the property has been abandoned. Most foreclosures are abandoned because the homeowner can no longer make payments on the home. If the house has been uninhabited for a long time, it’s likely in bad shape. Once you buy the property, it’s your responsibility to repair the property and make it safe, habitable, and livable again. You will probably need to arrange for a crew to come out and perform extensive repairs. Keep in mind that it may not be cost-effective to undertake extensive repairs on an abandoned property. You may decide it is better to tear the property down and start fresh.
Don’t forget to factor in repair costs before making an offer.
If you determine that a foreclosure property is a good fit for your needs, make sure to take the repair costs into account before making an offer. If the repairs will be extensive, you will want to make sure the seller is doing them before you take possession of the property. If the seller does not have the money to conduct repairs, it’s unlikely they will have the money for the closing. In this case, you’ll likely want to walk away from the deal, particularly if the seller is asking a low price for the property.
For many people, buying a foreclosure property is a good way to get into a home at a much lower price than they would be able to afford otherwise. You’ll want to be sure to research properties thoroughly, including what’s involved in making repairs, before making an offer. Buying a foreclosure property does have risks, but if you’re careful, you can also get a great deal on a home.