Read This Before You Buy That Foreclosed Home

The prospect of buying into a great neighborhood or grabbing an investment property under market value is exciting.  As highlighted , there are foreclosures in Westchase, Countryway and the Keystone-Odessa region.  But remember foreclosures only represented 10.95 percent, 12.6 percent and 12.8 percent in those neighborhoods in 2010, respectively. 

So, love the idea of building instant equity by purchasing under market value but want to know the downside? Here's the deal.

In my experience, the most concerning aspect of purchasing a foreclosure is hidden or unknown defects.

Remember when a buyer purchases a regular sale from a non-distressed homeowner, they receive a state-mandated, form disclosure where the current owner discloses everything they know about the property, including repairs, problems, additions and upgrades.

These disclosures help your home inspector delve into areas that may not seem to be a concern on the surface.  Liability also attaches to these disclosures.  In a foreclosure sale, the Seller (usually a Bank) is exempt from filling out state-mandated disclosures because they never occupied the property.  That means they have no liability for defects.  It’s buyer beware. So think about it this way: the departing and/or evicted homeowners are strapped for cash and angry when leaving the home.  They often do not maintain the home and its equipment for lack of funds, desire, or they do damage due to their emotional state on the way out.  Some of this we can see with our own eyes, some are hidden. And remember, even a trained, qualified home inspector could genuinely miss a hidden or unknown defect. 

Another area that can be challenging is the condition of the pool.  Many times, the bank doesn’t maintain the pool during the listing period. Due to our hot weather, algae, bugs and frogs proliferate quickly. If a pool is very dirty, it’s dangerous to run the pump because it could ruin the components. Also, the condition of the surface of the pool may also be obscured. Another large area for concern is mold and condition of the HVAC units.

The point is, if the foreclosed home you are thinking about purchasing is in poor condition and you have to spend $25,000 bringing it back into livable condition, have you really saved money?

If it means buying into the neighborhood you want and  you have cash to spend then maybe.  If it means it will be in line with comparable regular sales by the time you complete repairs, then the answer may be no.

Here's how you protect yourself: Start with the contract and make sure the Bank will turn on all utilities for the inspection.  Second, hire an American Society of Home Inspectors (ASHI) qualified home inspector to inspect the home thoroughly.  He may recommend additional inspections, especially if the home has been without occupants or utilities for a long period of time.  Third, make sure you are represented by a real estate professional that has negotiated and closed many foreclosures.

While in the process of closing on a foreclosed home security is also a major issue.  Routinely, appliances, heating and cooling units and other fixtures are stolen between when the home goes under contract and closing. So make sure the home is secure, leave a few lights on when you leave and drive by daily during the contract process.  Report suspicious activity to the police and listing agent as soon as you notice it.

These are just a few things to consider when purchasing a foreclosed property. For more detail on foreclosure properties, how to protect yourself in the contract process, timing and more, contact me or a real estate professional for advice.