Are Foreclosures Good Deals?
Are foreclosures good deals?
Not necessarily.
Everyone is clamoring to take advantage of someone else’s bad luck and scoop up foreclosed homes. Many buyers
are even going so far as to only look at foreclosed homes and are paying to subscribe to websites that promise to tell you when new foreclosures come on the market. What many unsuspecting buyers are not aware of, are the increased risk they take on when purchasing a foreclosed property.
First let’s go over some terminology you want to be familiar with before dealing with a foreclosed property:
REO – Real Estate Owned (by the bank)
Foreclosure – a property that has been repossessed by its lien holder (bank that owns the mortgage)
Pre-foreclosure – a property that is in danger of being foreclosed on but that the current owner has not lost all rights to yet
Short Sale – a long, drawn out process only those with the patience of a saint will want to put up with, the seller’s bank agrees to accept a price lower than the amount actually owed on the house
Now, back to the risks of buying foreclosed property:
NO DISCLOSURES ARE REQUIRED – In California banks and asset management companies in charge of the resale of a foreclosed property are not required to make any disclosures as to the condition of the property. This means the whole house can be one flip of a light switch from burning to the ground or the roof could be leaking like a sieve
and the seller has no obligation to tell a buyer or potential buyer.
BANKS AND ASSET MANAGERS WON’T USE STANDARD REAL ESTATE FORMS – Standard California Association of Realtor forms are important to buyers because they protect the buyer’s rights to inspections, buyer’s right to receive their earnest money deposit back if they cancel their escrow, spell out
important deadlines and the duties and responsibilities of the buyer and seller to determine the most accurate information about the condition of the property. Banks refuse to use these
standardized forms. They instead insist on using their own versions which often are worded in such a way that they
confuse the buyer and take away many of the buyer’s rights and
protections. These forms are also very often lengthy and full of jargon one would need a Master’s Degree in King’s English and Archaic Vocabulary to understand.
BANKS DO NOT ADHERE TO STANDARD TIMEFRAMES FOR ESCROW – In a standard, traditional purchase offer the seller has between 7 and 10 days to disclose all material facts affecting the property. The buyer has 17 days to review these disclosures, conduct investigations, and release contingencies, and the whole sha-bang can be completed in 30 days. When you’re buying from a bank, you work on their schedule which usually accommodates for their needs and not yours.
BANKS DON’T UNDERSTAND THE WORD ‘NEGOTIATE’ – When you offer a home owner $100,000 for their home they are asking $110,000 for, generally they will either accept your offer or spell out exactly what terms they are willing to accept. Banks love the words, “highest and best” instead of numbers and even if you offer more than they are asking, they will still counter all your terms with “highest and best”. This can be very nerve racking to a buyer especially if other offers have been submitted simultaneously.
BANKS ARE HELD HARMLESS FOR YOUR BAD PURCHASE – You’ve just bought a house for a fraction of what it cost three years ago; it’s in the nicest neighborhood in town, your significant other loves the high ceilings and the color schemes, you love the large front deck and lighting fixtures, you closed escrow this morning and the moving truck will deliver your belongings this afternoon. Just a few problems, the front door doesn’t lock, the kitchen sink doesn’t run cold water, some of the double pane windows are breached, the chimney has a bird nest in it and the wood floors are swollen because of the moisture coming in through the air conditioning vents. The bank wouldn’t
let you have a home inspection as a contingency of your purchase, you didn’t notice many of the defects the two or three times you viewed the house, and you received no disclosures about the property. Now what? Now you go through and spend more money and fix all the things wrong in the house. And you’d better hurry because the electric
heater doesn’t work and there’s a cold rainstorm headed your way this weekend. When you buy a house from a
private party that does not disclose obvious defects to the property you have legal retribution. Not the case when you
buy foreclosed property from a bank. The banks really stick to the motto, “let the buyer beware.” Any wonder their previous client no longer owns that house?
The long and short of buying foreclosed properties is that if you are a first time home buyer or are not familiar with the purchase of real estate, foreclosed properties may offer too many risks to make it worth your while. There are still plenty of non-foreclosed properties available at competitive prices with all the disclosures, stories, and answers to your “what-were-they-thinking” questions intact. Talk to your Realtor about properties in your area and educate yourself on the risks and advantages of foreclosed properties.
For information about how foreclosure can affect your credit score, read here. If you are looking for details on the $8,000 federal tax credit or $10,000 state tax credit, click here. Want to know why it’s so important to have a Realtor in your corner? Read my blog here.
For further information on this topic or any of my other blogs email me by clicking here. You can connect with me on LinkedIn.com, Myspace.com, Facebook.com, Twitter.com, Blogger.com, or ActiveRain.com.
I provide both buyers and sellers with real estate transaction services as well as tenants and landlords with management services in the Siskiyou, Shasta, and Trinity County Regions of far Northern California. I want to be your resource for information and answers to all your real estate questions. Ask me how you can get $1,001 or more on your next real estate purchase.
Jessica Murr
Realtor™
Richter Scale Real Estate
1940 Fort Jones Road Suite 5
Yreka, CA 96097
www.RichterScaleRE.com
530-842-6107 (office)
530-842-7430 (fax)
530-941-6061 (mobile)
Helping you take the next step towards Your tomorrow.
