Buying foreclosure properties may sound like an easy way to save or make money, but this isn’t necessarily the case. There are a number of potential pitfalls that could prove extremely costly for the buyer. This article advises readers on how to find foreclosures. It will also explain why buying a house through a real estate agent, rather than at auction, is the preferred option.
Buying Foreclosure Properties
An investor will typically pay about 10% less than would be the case through a traditional house sale. However, this ‘potential’ saving comes with a huge wealth warning. Without a thorough inspection by a seasoned professional, it is almost impossible to make an accurate assessment of that property. A house that isn’t maintained can develop any number of potential problems. A number of homes have even been deliberately sabotaged by the previous resident.
Foreclosure Home Auction
Buying a house at a foreclosure auction is difficult for a seasoned veteran, let alone someone who lacks sufficient experience and expertise. A home may look fine in the picture, but this doesn’t necessarily mean that a home is well maintained. Many auctioned properties are in a deplorable state as they were vacated long ago. This could mean that the money saved is eroded by maintenance costs.
Buying a Foreclosure Property from a Real Estate Agent
The majority of lenders will establish special relationships with estate agents that they know and trust. Check to see whether this is the case. The lender will usually ensure that any essential repairs are performed to a property in order to secure the best price. Unlike a foreclosure home auction, the buyer has an opportunity to inspect a real-estate owned (REO) property.
A tour involves a local estate agent taking prospective buyers to see a portfolio of distressed properties. This allows the buyer to determine which properties are likely to be of interest. Try to establish a good working relationship with the agent as they are more likely to be candid regarding what repairs are required and whether the property represents a good investment or not. Identify one or two suitable properties and ask to view them at a later date.
Before buying foreclosure properties, find out what comparable homes are fetching in the local area. Once repairs have been factored in, it is then possible to determine whether purchasing a foreclosed home represents a viable investment opportunity.
What to Look For
Sadly, there are many homes in recent times that have been foreclosed due to homeowners being unable to meet repayment obligations. This may be due to the current financial crises or the fact that the cost of the home may have been beyond the borrower’s means to start with.
Some may feel that purchasing a foreclosed property is profiting from the misfortune of others, while others feel that the fact remains that the property has been repossessed, the banks want to sell them off, why not try and buy a home a little cheaper than it would normally have been sold for?
Repossessed or foreclosed properties can be a wonderful opportunity for people looking for a house who have never been in a position to afford one before.
Foreclosed Properties – What are the Costs?
- It is possible that the owner of a foreclosed property may not have kept up with utility payments. It may be necessary to pay for services to be reconnected, such as water, electricity, telephone and gas.
- It may be that the owner was behind in rates and tax payments on the property and to get arrears up to date is something that may have to be negotiated with the bank who owns the property. The laws of each country differ in this respect.
- There may be damage to the property or repairs due to a lack of maintenance. A purchaser of a foreclosed property should pay for a full survey to be undertaken, to ensure that the property is structurally sound.
- A lawyer may need to be contacted to sort out and correct records pertaining to the previous owner so that the new owner does not have problems applying for a loan.
- Some countries require that an electrical compliance certificate must be obtained before the transfer can take place and the purchaser needs to obtain a certificate confirming that the property is free from timber destroying insects.
Where to Find Foreclosed Properties
- Check with mortgage lenders such as banks or building societies and ask them for a foreclosure list. Many such lenders have online sites with this information, others have departments that may need to be visited in person.
- Contact real estate agents who know a lot about the market and may have access to foreclosure listings before this information becomes available to the general public
- There are paid subscription services that provide an online listing of foreclosures on a daily basis. This may be a worthwhile investment for the serious bargain hunter.
- Review public notices where information on defaulted properties can be found, such as courthouses, public auction houses or classified sections of newspapers.
- Advertise by means of pamphlets, advertisements in local newspapers and word of mouth. This will let people know that a potential buyer may be available for a distressed property.
Whether a potential purchaser of a repossessed house wants to buy for investment purposes or as a home to live in, it is important to make sure the property is situated in a good area. Purchasing a property is a serious financial transaction but if the proper research is completed and the transaction goes ahead, it is possible to get the bargain of a lifetime.