Foreclosures are tragic for homeowners and their families, and these past few years have been especially tragic. Once a family has fought hard but lost the foreclosure battle, what happens to their home? In many cases, the bank takes ownership of the property and it goes back on the market, sometimes for an extremely long time period. These foreclosed properties are often in bad shape, but there is great opportunity for homebuyers looking to save some money on a home. This post will offer an inspiring story, go through some precautions you should take before buying foreclosed property and give some advice on the actions to take should you decide to buy one.
A friend of mine was looking for a home but didn’t have a lot to spend. He happened upon a foreclosed-upon property. Before making an offer, he made sure to have an inspection done—sure enough, the place was beyond “fixer-upper.” He reasoned, however, that since both he and his father were familiar with home renovation and restoration, that they could make it into a livable space if they were willing to work hard. They made a bid and ended up purchasing the home for about a third of its original purchase price. It took three months of arduous labor, but in the end my friend had a great house that he’ll enjoy for years to come.
That’s not to say that buying a foreclosure is as safe and easy as an inspection, a bid, and some elbow grease. The truth is that it’s full of potential pitfalls, but if you know what to look for you can easily avoid these hazards.
- It’s possible that the evicted family will have actually caused damage to the home. Be sure to check out the plumbing and wiring.
- Avoid auctions if possible—deal directly with a bank. You might not be able to even look inside of the home if it’s purchased through an auction.
- You might not get a great deal right off the bat. Shop around for as long as possible. When you do find an agreeable home, make sure to place a realistic bid.
- Patience is required. Your bid might sit around for a week, a month or half of a year. Buying a foreclosed-upon home is an often tedious process that is never for people who give up easily or the weak-spirited.
- Budget for repairs and renovation. If you’re taking out a loan, have money for repairs specifically set aside in an account so that the bank knows you can make the loan worth its while.
- Inspections are extremely important. Be as thorough as possible because it will help you plan for the worst. In the event that the inspection yields unfavorable results, be prepared to eat $300-$600. It’s a lot of money, but in the end it’s a small price to pay.
- Buying a foreclosed-upon home as an investment or a project to “flip” isn’t a sure bet at all. It’s likely much safer to buy the home to actually live in.
We’ve already talked about how important an inspection is to buying a foreclosure, but there are other actions you must take as well. Remember that buying one of these properties can save you a ton of money—but they’ll always require a ton of work.
- Get to know the neighborhood. What are other homes in the neighborhood worth? Is it a place you want to live? Find out as much as you can before you place your bid.
- Beyond paying attention to every exterior and interior detail of the home, check out the landscaping. You’re going to have to repair weeds and overgrown plants. You just are.
- Select a real estate agent that specializes in foreclosures. Do your research. This should be a person that’s willing to work with you and never work against you.
- Absolutely set a firm, but fair, maximum price. Be prepared to walk away and shut the door if the lender isn’t willing to play ball.
- If there’s a neighborhood association governing things in the neighborhood, do your research. Find out what they require and find out if it’s an organization that you can even live with. Some of them do great things for their respective neighborhoods, and some of them are intolerable. Your life should not be miserable because of one.
- Make your contract work for you. It’s wise to put a note in the contract specifying that you can walk away upon finding previously unknown factors (mold, additional fees owed, etc.).
- Keep trying. If your bid is rejected or something else goes wrong, try again. This can be a very trying and frustrating process, but saving tens of thousands of dollars is worth a few headaches.
There is, of course, more to buying a foreclosed-upon home than this. Remember that you’re buying a home that’s being sold as-is, so you need to prepare both the financial and physical means to make the property into a worthy living space. Buying a foreclosure might not be perfect for everyone, but if you’re willing to see it through to the end and sail through the storm then you might get the deal of a lifetime.
Tim Richmond is a writer, amateur historian and blogger who writes about the economy, finance, sustainable living and home ownership. He currently writes for the Native American home loan specialists 1tribal.com.