Foreclosures, also called distressed properties, encompass anywhere from 20-50% of the homes currently on the market, depending on the area. And they are everywhere – practically on every block and offered at every price range. Many buyers know they want the deal of a foreclosure, but really don’t know enough about them. Here are the goods and bads and all in between on foreclosures.
1. Most foreclosures are bank, corporate or government-owned properties. Neither the banks nor the government want to be in the real estate business. So, they discount the properties from the start for quick sales, which usually makes them a good deal and you have the best chance to earn equity.
2. Foreclosures are a mixed bag. They range from new or older homes that are in perfect condition, homes which need a little bit or a lot of work, to homes that are basically a disaster.
3. Buyer Beware. Foreclosure properties come with no disclosures, no warranties and no information. What you see and you can’t see is what you get. Banks, government and corporations sell “as is” which means they will not do anything to the property, before, during and after the sale. When you look at a foreclosure home, you need to look for mold, broken or missing mechanical services in the homes like electrical, plumbing and heating.
4. Get a professinal inspection. Even though it is a foreclosure, you still can have an inspection contingency. This way you can find out exactly what is wrong and what it will cost you to fix. You need to figure out if it is worth it. You will have to jump through some hoops as most of the time the services – like water, gas and sometimes electricity are off. And the homes are winterized. You may be required to pay any fees to dewinterize or rewinterize during the colder months or pay refundable or non-refundable fees and complete forms to have the utilities turned on and off.
5. Negotiations on foreclosure properties are not as deep as on other properties. Typically banks sell these properties, depending on the property and the condition, for between 90-98% of the asking price. Remember, they are already discounted. You can offer what you want, but be prepared, these properties are usually in demand and the banks will not always counteroffer. And very desirable properties may go for more than list price or can cause bidding wars. Gauge your interest in the property and how much you want to pay against your desire to get a deal. In other words, low-ball offers don’t work well with banks. They know their bottom line and will not usually budge. Know the value of the home, what it is worth and what you can get it for. That is what a professional Realtor is for – they can help.
6. Foreclosure properties are done on their terms, no highway option. As said before, you may need to pay for things a buyer usually doesn’t pay for, like village inspections and village escrow (if required). You will not get any concessions and you will only get 100% tax or assessment proration. You may not be able to change the sales contract and you (or your Realtor) may need to complete a lot more paperwork and get more approvals, if you are getting a loan.
7. Speaking of loans… depending on the condition of the property, FHA loans will not always be available. If it is a Fannie Freddie or HUD property, they are usually FHA approved. Most banks will give conventional loans on foreclosures. And they usually appraise out, so you can get loans.
8. Banks and the government do things on their own time table. Banks may take up to 1 to 2 weeks to get you an answer because they may require several tiers or board approval. Fannie Freddie properties usually get quicker answers. HUD properties are on a bidding process and you are potentially bidding against others without knowing it. Sometimes it will take longer to get the contracts and responses back. Usually 1-3 weeks, but not months, as with short sales.
9. Finally, beware of scams promising cheap foreclosure properties. Anything listed on the MLS is going to have clear title with no liens. Plus taxes will be paid and prorated, past utility bills will be paid, etc. There are a lot of companies that offer foreclosure and preforeclosure properties where you are buying homes sight-unseen without a clear title and with whatever problems it has. Sometimes you will get stuck with all kinds of bills and problems that you don’t know about. You may even get stuck with city violations, fines, or even trying to evict tenants or other occupants.
10. As a final note, just because a property is not a foreclosure, doesn’t mean it isn’t a good deal. There are individual sellers that are very willing and able to realistically negotiate on their homes. You can get a good deal from a seller who has a lot of equity and wants or needs to sell and you will often get faster action from them.
Foreclosures present an opportunity to get a great home and a good deal. But you have to have your eyes wide open and consider everything. The best advice is to make sure you have a licensed and experienced Realtor who has expertise in foreclosure properties. Having a Realtor help you doesn’t cost you anything, as the seller pays any commissions. Why not use the help – it protects your interests.
If you have questions on foreclosure properties, call us at 888-788-9544 or email us at firstname.lastname@example.org.