Pros and Cons to Foreclosures
Pros and Cons to Foreclosures
By Liz Rainey, Upper End Properties
There is a growing interest among buyers to purchase a foreclosed home, before submitting a contract it is imperative to educate yourself on the Pros and Cons. Keep in mind that if you are looking to move into a home relatively quickly a foreclosed home is not going to be a good fit for you since the process can take months to complete.
Pro: Potential Bargains
Being able to purchase a foreclosed home in a good neighborhood and/or school district can allow buyers to expand their search into areas they typically could not afford. Foreclosures can also allow buyers to be able to purchase in areas with high resale values making the home a good investment.
It is important to note that there are more homeowners who are upside-down on their mortgages and owe more than the property is worth. Banks are trying to recover as much as possible so they might be less likely to accept deep discounts.
Con: Condition of the Home
Owners who know that they are going to lose their homes are less likely to take care of the house, they might intentionally do damage to the house or not be able to afford the repairs that need to be done.
Banks have little interest in performing repairs to your home. Bank-owned homes are generally sold “as-is”. It is best to not assume that just because the wiring is ripped out of the wall that the bank will fix the problem. Typically if there are any repairs that need to be made, the listing agent will usually suggest them to the bank and the repairs are made prior to putting the house on the market.
From time to time damage to the home occurs after the house is on the market, it is best to work with the listing agent so they can communicate with the bank on the damages and estimated costs. If a foreclosure has obvious property damage, have your contractor view the house prior to making an offer.
Con: Additional Paperwork
An REO (Real Estate Owned – by the bank) home sale typically requires additional paperwork. A foreclosure does not use the standard contract forms, it is imperative to read over the contract to make sure you understand everything. If you have any questions contact a lawyer for clarification.
Con: Lack of Paperwork
Many states exempt banks and other types of corporate homeowners from making disclosures about the condition of the property. Even in states where the banks are not exempt they will either not fill out the forms or put N/A over the document since they have not lived in the home and do not know the condition of the home.
In any transaction it is essential to have the property inspected and to review the inspection reports. For a foreclosure make sure to get a property inspection, water & sewer line inspection and an insect/pest inspection. Vacant foreclosures usually have their utilities disconnected; make sure that your agent has contacted the listing agent to get the utilities turned on prior to your contractor inspecting the property It is important to note that the buyer is responsible for the cost of these inspections but it is wise to pay the money upfront rather than learning of the problems after you have closed on the house.
Be patient and realistic and hopefully you will have a painless experience.
