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Serving South Florida

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For over 30 years

Foreclosures – Tips for Buyers!

This second wave of foreclosures combined with the fact that many people’s 401(k)s have bounced back with the stock market, and most economists agree that the bottom of the recession has hit means that competition for these foreclosed homes is, in many cases, fierce. There’s a renewed, final dash to get in on what some perceive as the best real-estate deals they’ll get in awhile. But how do you know which foreclosure is a good buy, and which to walk by? Here are some tips to help guide you through the selection process:

Get it checked out by a pro. Banks sell properties in a strictly as is condition. If you look at a foreclosure and it needs substantial work to make it livable, don’t expect that the bank will make these repairs prior to closing. Anything short of an environmental or health hazard will ultimately be the buyer’s responsibility. Perhaps the most essential point: Never go by looks alone as an indicator of whether a foreclosure is a good buy. A $2 million mansion may look gorgeous on the surface but might have toxic mold hiding beneath, which will require extremely pricey, lengthy repairs. On the other hand, a property may look dilapidated but may have excellent bones and can be repaired at reasonable cost. A certified professional home inspector must be contracted to check out a property at the BUYER’S EXPENSE before finalizing a contract. If the bank will not accept a contract contingent on inspection walk away! A buyer needs to determine what repairs need to be done so that you can truly assess whether the home is worth the investment. Use an Exclusive Buyer Broker’s recommendations on which firms to use for inspection. Don’t rely solely on previous inspections that may have been ordered by the lender, even if relatively recent a vacant home can deteriorate quite a bit in a short time, especially in an area with climate extremes.

Don’t abandon common real-estate logic. “Real Estate Disclosures” – There aren’t any! The bank has never seen or lived in the property and has zero knowledge of the history, prior or existing defects, or the surrounding areas. Typically a Sellers Disclosure is obtained by a buyer prior to submitting an offer. Don’t expect any from a bank. Too many people, when shopping for a foreclosure, abandon their real-estate sense and focus on price alone. Remember, things like a sub-par location, poor light, terrible view, below-average school district, high local crime rate and other negatives might be part of the reason why a home went into foreclosure in the first place. Don’t assume that financial problems of the previous owner are the main reason for every foreclosure. The last owner may have bought the home ignoring some of the aforementioned problems, and seen value sink because of them. Don’t ignore those problems, especially if you are considering selling in the next 5 to 10 years. Know how long the home has been empty; the longer it has, the more of a chance this isn’t a good deal. Also, if there are plenty of other foreclosures nearby, that may also be a bad sign of the financial health of the community and you cannot predict who your neighbors will be in the future.

Use Professionals to Represent You!
An experienced Exclusive Buyer Broker and real estate attorney are key to protecting yourself when considering buyer a foreclosure property from a lender. “Contract Terms” will change – Your initial offer may be accepted verbally however, soon thereafter you will receive a whole new set of documents & addendum’s to review and sign ASAP if you expect the contract to move forward. You’ll find that many of the terms, times and conditions are very different than what is in a standard contract. The only thing that is accepted is “price”. All other conditions will be incorporated in the bank or investors contract and they tend not to negotiate terms. You will likely be required to work with the banks chosen escrow and Title Insurance company. They will rush you for your deposits and afterward take their time on processing the required signatures and meeting deadlines. There may be liens, open permits, or no permits on work previously done on the home. All of these need to be thoroughly investigated to ensure you have a marketable property and clear title.

Skip or, at least, very strongly re-think THE FLIP. House-flipping, i.e., buying at bargain-basement pricing, updating, then selling for much higher is very 2006… and hasn’t exactly been hot since. Even if a house looks like an incredible flipping opportunity, beware of this temptation unless you are a pro, with incredible contractor connections. Avoid the temptation to make fast money unless you think it through and talk to their real-estate professional (Exclusive Buyer Agent), a home inspector, and contractors. Whatever you think you will spend to rehab a home (double or triple the estimate for unforeseen issues and cost overrides.)

Go over the budget. A fixer-upper means nothing if you can’t afford to fix it up and that’s especially true for foreclosures, where those fixes can cost a pretty penny. Before buying, make sure you have an ample budget to do all the repairs needed, after truly taking stock (with the help of a home inspector) of what those needs are. Make sure they have at least half of that money in cash, and preferably all of it. Loans are very difficult to get today on making the initial purchase and home equity loans are almost non-existent. If you do not have the cash to do the repairs reconsider buying a foreclosure.

Do your homework on lenders. Fewer people are getting financing for home-buying than they did before the recession, but good financing is luckily still available to many qualified buyers. Just make sure, as with regular home buying, that you enlist a reputable lender. A good lender will take the time to do a review of your financial life and long- and short-term goals. Also ask about hidden costs, rate locks, prepayment penalties, origination fees and whether underwriting is done in-house. Make sure everything is explained to you clearly, and review all of the answers with a real-estate attorney, who will also be able to check out the lender’s overall reputation. These are things that many people do during the standard home-buying process, but might gloss over when lured by a low foreclosure price tag.

See it in person. Finally, never to buy a house without going in person to see it.

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