My son is presently searching for his new Chicago home. His first thought was to purchase a foreclosed home instead of one that is not foreclosed. During a recent telephone call, he asked me, what do I need to know about purchasing a foreclosed home?
- NO WARRANTY ~ Unfortunately most of these properties do not utilities connected thereby precludes a complete inspection. I have found that many banks will not connect the gas to a property. This makes it impossible for a buyer to confirm that the furnace, water heater, barbecue, or gas fireplace is properly functioning properly. Good luck with finding someone to repair these items at a reasonable price. It has been my experience that the price to repair these items has been astronomical.</.
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AS IS ~ Most listings indicate that the property is being purchased in an as-is condition. In other words, buyers beware and do your homework. There is typically no disclosure statement to provide the buyer with some sort of indication what repairs were previously made. I feel that this is especially important when living in the desert since we have a tendency to have scorpions. If you have ever been bitten by a scorpion, you would want to know if there were any scorpions in the home you would be purchasing. There may not be scorpions in Chicago but as a mother, I would feel a little safer knowing if there was a history of some sort of creature in the home.
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ANGRY OWNERS ~ The previous owner has probably seen their American dream crushed when they were unable to make that mortgage payment. Disgruntled owners frequently leave these properties in disarray. To add to the problem, vandals seem to have been targeting vacant homes. Consequently, there may be a substantial amount of cleanup required.
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LIST PRICE ~ The primary advantage of purchasing a foreclosed property is the list or selling price of the property. Know the comparables (COMPS) in the area and do a complete pricing research. Complete a projected cost analysis of any repairs that you may anticipate with purchasing a prospective property. Although the property may be purchased at a "bargain price", it may not result in a bargain if you have an exorbitant amount of repairs.
It may be a great investment and be the home of your dreams. Do your researches, ask family and friends, ask the neighbors, and when you select that ideal home, enjoy it for years to come!
Do you have any other recommendations that you feel buyers should be cognizent of when purchasing a foreclosed property?
Leolinda,
Now is a great time to buy a property out of foreclosure, but from a lending standpoint there are a few things to consider. First off, many of these homes are going to have some sort of necessary rehabilitation. As you know, people are tearing out fixtures and countertops, even copper pipes and electrical wires to get some cash out of the house before the bank takes over.
When you son goes to buy one of these homes, he should be aware that there is an FHA program for rehabilitation and if it is structured properly, he can buy the house with no money out of pocket, make no payments for the first six months and move into equity the day he turns the key.
If you would like, I can explain this in more detail to both of you by phone or we can meet in person. I am located here in Phoenix and licensed in Illinois. I am actually from Chicago so I know the lay of the land out there too. Let me know if I can assist an any way.
Ben 602-570-1498
I think it's time to wait a while as the homes are going to see some serious downturn in value in the weeks and months ahead. And buying a forclosure can be good if you make direct offers to whomeve is holding it and leave the real estate brokers out of the deal. I know that goes aganst our business but why do we want to pay the extra fee for a foreclosure that the bank does want anyway. A real foreclosure sale should be abput 20% of the value if you do your home work.
good luck
Ben, I will forward the FHA rehabilitation information to my son. I shall also give him your telephone number.
Hollis, The market may not have yet reached its equilibrium and may still be correcting. As with all other transactions, the buyer must do their homework in determining fair market value and capture the present downward movement when submitting their offer.
Purchasing a foreclosed home is an opportunity to get a home at a great price (usually well under the neighborhood valuation) but it also means you will have to spend money (usually a lot of it) to upgrade the home and make repairs.
I had buyers who were purchasing a foreclosed home and had to have the appraiser go back in after the water was turned on so he could make a determination that the home had running water and was habitable. The lender would not fund the loan if they could not get the water turned on.
I had another buyer who walked away from a deal because the bank would not turn on the utilities for inspections.
When purchasing a foreclosed home the buyer needs to be aware of all the "pitfalls" associated with buying a "bank-owned" property and understand the process is not always easy.