Home Buyer TIPS On Purchasing A Distressed Property: Pre-Foreclosure, Short Sale, Foreclosure or REO
Did You Know That Foreclosures and Short Sales Can Actually Cost A Buyer More?
So many buyers think the best deals out there are foreclosures and short sales, but they can actually cost MORE!
One important thing for home buyers to keep in mind is that since we are in such a strong buyer’s market now, there are many motivated sellers out there that have great homes priced to compete with the short sales, pre-foreclosures, foreclosures and REO’s and a buyer can usually purchase one of these homes with a less stress, money and risk factors than when buying a distressed property.
Here are just some of the additional costs you may incur with a
bank foreclosure / distressed sale:
Survey: Approximately 150.-300. (Usually a seller cost, except when a bank sale)
No Tax pro-ration: (usually 105% of the last tax bill in this area, banks only will usually give the buyer 100% of the last known tax bill)
Usually no negotiation on repairs, so if you do your inspection and it is not satisfactory to you, you talk with your attorney regarding canceling the contract if it is within the contingency dates, but no one will give you back the 300. or so you may have spend on a home inspection, or any fees that were paid to your lender. You may also be putting out your hard earned dollars for radon, lead paint, or mold inspections if you feel they are important to you.
Not closing on time can also cost you a Per Diem, as banks usually have this in their contract addendums. This is more of a risk now with underwriting and appraisals taking longer and daily changes in the banking industry. The addendums usually have a charge that the buyer will have to pay for each day after the original closing date if they can not close on time for any reason. I have seen this Per Diem charge being anywhere from 25-100 dollars per day.
By the way....*****I love working with buyers***** :-)
Appliances: Banks usually say there is “no bill of sale on personal property”, so what you see when you write an offer may not be what you see before closing. Make sure you have some extra money put aside in case you have to purchase appliances.
Well/Septic Issues: If a property is on a private well or septic, you will also have to pay for your own inspections and this is usually a seller’s expense in this area. Another thing to keep in mind is that if you have an FHA loan, a vacant property that has a private septic system will not work since FHA now requires a copy of the septic test and if vacant, the inspector will usually put something on the report like “property is vacant and a re-test is recommended 30 days after normal use”. If the well test does not come back with the water being safe, the buyer will usually have to correct the situation since it is an “as is” contract.
De-Winterization and re-winterizing the property for inspections and final walk-through. In most cases this is a buyer’s expense. Even if you are not doing a home inspection, the appraiser usually will want the water on when they come by to do the appraisal, especially if it is an FHA mortgage.
No disclosures: Since they have never lived in or in most cases, have never even seen the property, they are exempt from having to do the usual disclosures. Your due diligence is even more important in foreclosures and any distressed sales.
Deferred maintenance: When someone can no longer pay their mortgage, many times they also have not been able to properly keep up with maintaining and updating their home so more repairs are usually necessary than on a home where the seller has been able to afford to keep up with updates and maintenance/repair issues.
Timing: Many times there is a very long wait to get a response on an offer, and it is usually worse with short sales than REO’s, which are properties that have already been foreclosed upon. You could be risking closing on time to be able to take advantage of the first time home buyers credit, which expires at the end of June 2010. Remember, you will have to have an accepted contract by the end of April 2010. I would recommend not waiting until the end of April to have a home under contract if you are a first time buyer or otherwise principal residence buyer who qualifies for the up to 6500. expanded home buyer tax credit. If that contract falls through so will your home buyer’s tax credit of up to 8000 or 6500!
Furthermore, in a short sale situation, in Northern Illinois the trend is becoming that once a seller signs a contract, contingent upon bank approval, the buyer usually needs to move forward with their inspections and mortgage approval right away, even though the bank has not yet made a decision if they will approve the short sale or not. Usually once the bank gives an approval, they do not give the buyer too long to close and most of the time it is not enough time to do this after approval. The other reason for this is that if a seller only sends one offer into the bank (which is usually how it is done because any time a new offer is presented to them they go back to square one and the waiting time starts all over!), the seller really does not want to risk that the buyer cancels the contract after they have waited so long for an answer and the clock is ticking for them when they are facing foreclosure so usually do not want to be tied up with a buyer who will not wait. In the Short Sales and Foreclosures Resource class I just took last week, the consensus seemed to be that buyers and sellers were waiting an average of 3-4 months for the bank to decide if they approve the short sale or not.
These are just some things to keep in mind when considering your options. Foreclosures and distressed sales can be excellent opportunities for the right buyer who is not trying to closely watch their costs, who has a lot of time and patience, who has some money to “gamble” with if contracts are not approved, who does not have to close by a certain date (like to get the first time buyer tax credit!) and the ability not to get too attached to or emotional about the property. Do not get me wrong, there are many great fantastic deals out there to be had right now, but do not make the mistake of thinking that the only good deals are distressed sales. Sometimes, a truly motivated seller with equity in their home can also offer a wonderful buy with less cost, less waiting and less hassles and a property in better condition as well!
It is a GREAT TIME TO BUY REAL ESTATE in McHenry County, Cook County , Kane and Lake Counties in Northern Illinois. There are fabulous homes for sale at great prices!
***especially for first time buyers, investors and move up buyers. *** Rates are fantastic, too!
We are having a "HUGE sale" on our large inventory of VERY well priced HOMES!
To Search Homes For Sale, Please Contact Me Directly Or Feel Free To Search On My Website!
My Direct Number at the Office is 847.516.6760
If I can help you or someone you know purchase or sell a home, I’d love to help.
If I can be of assistance to you, or, if you just have a question please do not hesitate to call or email me. It will be my pleasure! By the way, if you know of someone that could benefit from my high level of service, please call or email me with their name and daytime phone number and I will make sure to follow up and take great care of them. My business keeps growing from your referrals.
There are fabulous buys on the market....now is a GREAT time to buy real estate in IL, especially for MOVE UP Buyers, Waterfront Buyers, Vacation and Second Home Buyers, Investors and First Time Buyers!
To Search Homes For Sale, Please Contact Me Directly Or Feel Free To Search On My Website!
Search Waterfront and Fox River Front Homes For Sale Here
It is an EXCELLENT TIME TO BUY NOW, especially for first time buyers, second home buyers, investors and move up buyers.
REAL ESTATE IN IL IS ON SALE! :-)
I hope you find this information useful. I am only a phone call or email away of you need real estate help:-)
If I can be of assistance to you, please do not hesitate to call or email me. It will be my pleasure!
By the way, if you know of someone that could benefit from my high level of service, please call or email
me with their name and daytime phone number and I will make sure to follow up and
take great care of them.
The majority of my business is referral and repeat clients. I am so grateful it keeps growing from your loyalty and referrals:-)
I appreciate YOU and your referrals!
I can be reached at my direct number at the office: 847.516.6760. I look forward to hearing from you!
Information deemed accurate and reliable but not guaranteed. Source MRED MLS.Disclaimer: Information herein may come from various sources, some of which may not be reliable and may change without any notice. Debra Kukulski does not guarantee or is any way responsible for the accuracy of the information in this blog and information provided is without warranties of any kind, either express or implied. Information on this blog represents the opinions and ideas of the author; comments by others may not express the views of the author. All photos and content may not be duplicated without express written consent of author.
Copyright © 2010 By Debra Kukulski, all rights reserved.
Debra I am assuming you copied the blog from somewhere else go back in an edit it and take out the information at the top because it's a good blog that I think most will pass by because of it.
Hi Heather, I noticed that right away and went back in and tool out all of the HTML. I could not seem to get that out until I posted and went b ack in to edit it. I wrote it in Word and copied and pasted it from there, but I think it is all fixed now:-)
We don't really have many winterized properties around our area, but this is an excellent point.
Great information for buyers. Many of our foreclosures are currently being inspected before being placed on the market. This time of year, it's a must! Saves buyers a lot of money.
This is a great blog, Debra! I think the biggest problem for the buyer is the time factor and how banks seem to be on a schedule of their own without regard to the buyer. Even after waiting there is no guarantee in many cases that the offer or sale will go through. Very good information!!!
Hi Debra, Wonderful information for home buyers! Buying a foreclosure or short sale does have some drawbacks, and isn't for everyone!
As a general rule a bank places a foreclosed property on the market at less than the foreclosure bid... now if there is/was a second involved you can see some real markdowns!
Hi Debra, that dog with shopping bags is way tooooooooo cute... !
wanted to drop in and wish you and your entire family have a great holiday
Hi Debra, I enjoyed reading your blog. Packed with information. The REO's and short sales can suck up so much time from the buyer, and they can actually keep the buyer tied up with a property that may not even close. Thanks for the information!
Debra - Thanks for the clear and concise information. I've been working Short Sales in our area and Buyers don't immediately understand the hurry up and wait strategies the banks use.
Jill Schuster (Town & Country Realty, Corvallis OR)
Debra, wonderfully realistic post! Buyers get so caught up in getting a "deal" that they often are not aware of the potential for extra costs. It still costs money to buy a house, whether owned by a private seller or a bank.
Debra,
Great post. In 2008 I had an REO listed - great house only 2 years old with very nice appliances. Buyers were shrewd, they insisted we locked the house up and took the lock box off to prevent other showings. They wanted to be sure as they could that the appliances were not going to walk out of there. I don't know but I wonder if they parked outside for the 30 days it took to close. LOL.
Debra, you have some very valid points, especially regarding wells, septic, and deferred maintenance. The key for listing agents is to disclose, disclose, disclose up front, so there are no unrealistic expectations if the buyers' agent doesn't explain to the clients how short sales work. We do no favors for our Sellers if we fail to disclose.
Hi Vicky...thanks for stopping by and that is nice you do not have to deal with winterizing and de-winterizing foreclosed homes in your area. It is an added expense usually for the buyers although on one foreclosure I am working on now, we were able to get the bank to agree to pay for this, so that was nice!
Hi Kay. That is so interesting that the foreclosures in your area are being pre inspected. Who does this, the bank or the listing agent? I have seen it where the sellers will do a home inspection and leave it out for potential buyers but I think it is also prudent for the buyer to do their own home inspection and not just count on one that was provided by the seller. Have a great day, Kay and thanks:-)
Sharon, that is so true that the banks seem to have their own timetable without regard to the buyer. This is what may make a short sale tough for a buyer who has a deadline to close, for example first time buyers wishing to benefit from the home buyer tax credit. I took NAR's short sale and foreclosure resource class recently and the speaker did an informal survey of the Realtors there and the consensus seemed to be that the average wait was 3-4 months after submitting an offer. You just have to have a lot of patience! I have found that REOs, or foreclosures seem to move much faster than short sales, since the bank has already taken the property back and is more motivated to get it off their books. Sharon ...have a great day and thanks:-)
Hi Mary, I do agree! Short sales and foreclosures can be a good deal, but they are definitely not for everyone and best if are very patient and not emotionally attached to the property. Mary...thanks for popping by:-)
Hi Perrin, I had not heard that, how interesting!
I agree, foreclosures can be great deals, but they are definitely not the only great deals in our market. Many buyers come to me saying they want to buy a foreclosure, but what they really mean is that they want to get a good deal on a home and there are SO many fantastic deals out here now!
Perrin, thanks so much for stopping by my blog and have a excellent week:-)
Hi there, Lynn...how nice to see your smiling face:-) I know, right? I love that little dog and just want to keep reminding anyone I can that there is a HUGE REAL ESTATE SALE going on right now! Lynn...have a great day and keep helping spread the word!
Debra.
Good post,
In my area some banks are fixing the property for sale. They look almost better than the renovated properties and they sell them 10% cheaper than whatever it should sell for. You can do a home inspecition too. On short sales you can also do inspections. So I would agree with this (in my area) for properties bought at the court house steps. Tere
Great Points! Another issue people need to be aware of is the effect of the "as is, where is" auction. In this case, there is no recourse if you buy the house and find "issues" later. At HABITEC Home and Building Inspections, LLC, serving Nashville and Middle Tennessee, we offer the "Auction Inspection" to help people make a good decision about the short sale or foreclosed home at auction. For details, see: http://habitecinspections.com/AuctionInspections.aspx
Thank You,
Richard Acree
Comments in this blog posting are the copyrighted intellectual property of Richard Acree, President, HABITEC Home and Building Inspections, LLC, and contributing members of the Active Rain Real Estate network, and are intended to educate and otherwise assist home owners, sellers and buyers, building owners, sellers and buyers, realtors, real estate investors, property managers, and lenders in the process of owning, buying or selling homes or commercial buildings. HABITEC is a residential (home) and commercial building inspection company serving Middle Tennessee including Nashville, Brentwood, Franklin, Murfreesboro, Smyrna, Mt. Juliet, Hendersonville, Dickson, Belle Meade, Columbia, Spring Hill and more! In addition to building inspections HABITEC offers Environmental Services for mold assessments, radon testing and water quality analysis. Additional information about HABITEC can be found on our website at http://www.habitecinspections.com, or call 615-376-2753.
Richard Acree is the author of the HABITEC Home and Building Inspections Blog and founder of the ActiveRain Group Tennessee Home and Building Inspectors. All are welcome to join and see more blogs like this one.
Hi Tere! I am not really seeing the banks fixing up the homes before they sell the foreclosures here, but that would certainly help move them. I always strongly encourage my buyers to do a home inspection on any property, foreclosure or not! I think it is so important for the buyer to know what they are getting into. They are even more important on "as is" contracts, such as foreclosures, some short sales and REO's. Tere, I hope you are having a great weekend and thanks for stopping by:-)
Hi Richard, thanks for commenting. You are preaching to the choir! I do agree that a home buyer should have a professional home inspection done on any home purchase.