Buying Foreclosed Homes: Deal or No Deal?
Wednesday, January 14, 2009
Bound Brook, N.J. - HouseMaster®, the first and one of the largest home inspection franchisors in North America, reports there are abundant opportunities for qualified homebuyers in the current real estate market - triggered by a 28 percent rise in foreclosure activity from last year - but working through the intricate foreclosure market will be less difficult for consumers that properly prepare for the process.
“Properties in different stages of foreclosure represent opportunity but also danger for the unassuming buyer,” said Kathleen Kuhn, President of HouseMaster. “While potentially lower asking prices draw possible buyers to these homes, each property has its own challenges that can come from abuse, neglect or deferred maintenance from the previous owner. Consumers must do their homework to help them know whether a property is truly a 'good deal.'”
Not all foreclosures are a great buy and if consumers are not
fully educated on the property or the process, a buyer could
potentially make a poor investment decision. “Buyers must take
proper precautions to ensure they are making educated real estate
decisions, and are aware of property conditions that can greatly
affect the home's long term value,” Kuhn added.
Kuhn said there are three primary types of foreclosure properties that the typical buyer should familiarize themselves with before making an investment in today's real estate market, and know of corresponding structural and physical attributes that can affect each. They are:
Short sales - essentially a pre-foreclosure sale. Short sales occur when a home is sold generally at a reduced price by a seller who is facing foreclosure but has not been foreclosed on yet. The process is designed to create ideal outcomes for all parties involved - the seller avoids foreclosure, the buyer obtains a good price on the home, and the bank avoids the full foreclosure process and cost.
Potential short sale buyers should be pre-qualified for a mortgage since banks need assurance an offer is solid and legitimate. Buyers should also have the home inspected before they make an offer, and again before closing. Despite the name, short sales can take an extended time to officially close and buyers typically find that several months have passed since their initial home inspection and the closing of the short sale. A re-inspection will identify any conditions that may have changed since the original inspection and check systems that may not have been previously accessible or operational due to climate or other issues. Any issues that are found during the pre-closing inspection can then be addressed with the bank before a buyer signs on the dotted line.
Real Estate Owned (REO) - A home that has been foreclosed upon and is now owned by a bank. These homes are prone to issues that are not as prevalent as other resale homes, generally due to lack of use and vacancy.
When purchasing a REO property, potential buyers will likely deal directly with the former lender or agent representing the lender because the seller is no longer present. Lenders often sell REO properties in “as is” condition, which means that no repairs will be made to the home by the lender. If the house has significant defects, buyers can adjust offers by presenting the bank with a professionally prepared home inspection report highlighting the defects and the condition of the home or walk away from the deal.
Auctions - Auctions tend to be one of the riskiest ways to purchase a home. Generally a home sold at auction is being sold “as is,” with little opportunity for inspection. Auctioneers will typically schedule limited times for interested buyers to view the properties but almost always a full inspection can not be completed. These types of properties typically have no utilities turned on, and do not provide access to important areas like crawlspaces or attics. “Buying a home through an auction is not recommended for the novice real estate buyer, as they are unable to get the access and advice necessary to make an educated decision as to potential serious and costly repairs that could make even a very low priced home a bad deal,” Kuhn noted.
“Education is the key need when buying a foreclosed property,” added Kuhn. “It helps the buyer understand their options allowing them to get the best house for reduced costs and helps to avoid making potentially devastating financial mistakes.”
According to a recent study conducted by HouseMaster, there are five main physical conditions that are typically found in a foreclosed property. They are:
- Moisture related problems
- Defective gaskets, valves and hoses that are leaking or have the potential to cause destruction
- Vandalism, especially if the property has been vacant
- Insect and rodent infestations
- Blocked or damaged waste and sewer lines
“Now is a great time to buy a home, especially for first-time buyers,” adds Kuhn. “But, if buyers are considering properties in various stages of foreclosure, property inspections are very critical in making the right investment and getting the best deal.” More information about foreclosure properties and tips for buyers and sellers can be found at www.housemaster.com.
About HouseMaster: Headquartered in Bound Brook, N.J., HouseMaster is the oldest and one of the largest home inspection franchisors in North America. With more than 370 franchised areas throughout the U.S. and Canada, HouseMaster is the most respected name in home inspections. For over 30 years, HouseMaster has built upon a foundation of solid leadership and innovation with a continued focus on delivering the highest quality service experience to their customers and providing HouseMaster franchisees the tools and support necessary to do so. Each HouseMaster franchise is an independently owned and operated business. HouseMaster is a registered trademark of DBR Franchising, LLC.
For more information please visit www.housemaster.com or call 800-526-3939.