Sure, you can get a great deal buying a foreclosed property. Typically, these homes sell 19-59% less than a home that’s not foreclosed in the same market, according to Zillow. But like anything else that sounds too good to be true, it usually comes with its own set of problems. Here are some things to look for:
In an REO (real estate owned a.k.a. bank owned) property sale, there are no disclosures. That means that you won’t know what kind of issues the previous owner had with their home. Work with your real estate agent to pull together all the public information you can, such as permits and title reports. Make sure to also invest in a thorough home inspection. This will reveal most structural and mechanical problems.
Take that extra step
Sometimes a standard home inspection can’t discover certain problems. The sewage system, for example, might have not been used for a while and so it developed problems that won’t surface after some use. An invisible electrical system (such as one in the walls) might cover up poor workmanship from some time ago. You can try to prevent these issues by hiring a plumbing company to scope your drainage system with a camera and an electrical company to trace your wired walls with scanners and ensure they work properly.
Stripped appliances and fixtures
Some homeowners will take out any appliances of fixtures and sell them in order to retrieve at least some money for their loss. Sometimes, you’ll find a situation where the bank wouldn’t cooperate in a short sale or the homeowner struggled to stay in the home and so felt justified to destroy the property before moving out. Remember that you are responsible for any fixes, so make sure you understand your budget. You real estate agent can recommend responsible contractors to help you.
The Bank’s Contract
When you’re signing a sales contract with the bank, it will not look like your regular local contract for the board of Realtors. The bank will include measures to protect themselves from any potential future lawsuits, putting most of the home’s burden on you. Most of the time, you don’t have any option but to sign unless you’re willing to walk away from the deal.
Many people have keys to a foreclosed property. Real estate agents, contractors, bankers, and appraisers typically get access to the home with a master key system. Make sure that after you buy your home, you re-key all of the locks to keep strangers out and your new home safe.
So while you can get a great deal in buying a foreclosed home, there are a few extra steps you need to take to ensure that your transactions goes smooth. This doesn’t mean that every foreclosed property will have the same issues. But it’s always better to be safe rather than sorry. And you can always count on your real estate agent to assist you with their connections and expertise every step of the way.