I get requests from buyers all the time to find foreclosed homes. Most buyers get a gleam in their eyes because they have been told that you can get a home for pennies on the dollar. There is always a cousin or a friend’s friend who bought a home dirt cheap.
The truth is that if a home is dirt cheap it's because it has a lot of problems – structural, roof, termites… and will need a lot of money to make it habitable. Plus, the buyer will not get a loan if the home is not habitable.
One home we looked at was $50,000 less than comparable homes in that neighborhood. Guess what? It had major structural problems and termite damage. Then there was a home on a hill - the garage looked like it would snap off!
Since the seller (i.e. the bank that owns the property) does not have to provide a property disclosure, buyers discover the problem only after they have entered into a contract and spent money on a home inspection.
So my advice is that unless you an investor and know how to deal with these problems, stay away from foreclosed homes.
Instead, take a look at short sales.
What are short sales?
When a homeowner is late in his mortgage payments or cannot make payments, the lender (bank) will start foreclosure proceedings. But with the lender’s permission, the homeowner can try and sell the house before it is foreclosed, and since it’s a quick sale, the price is almost always below market price. This way, the lender does not have another house added to its inventory and the homeowner walks away with some damage to his credit rating but not like the damage in a foreclosure.
What are the advantages to the buyer?
1. The homeowner is required to provide a property disclosure, and has to disclose any problems in the roof, plumbing, etc.
2. Often, water and power are on and in use.
3. Often, the home is occupied. And in cases where they are not, the house would not have been vacant for a long time. Remember, a vacant house falls into disrepair very quickly.
4. In today’s economic climate, lenders work pretty quickly when offers are received for short sales.
In a short sale, the house may not be a ‘steal’ but it will still be a ‘deal’!
