Buying a Foreclosure – Not for Everyone
Price-conscious home buyers are lured by the low prices advertised for properties in foreclosure. They hope to show up at the auction and win the lowest bid. Before you rush forward to buy a foreclosure, there are a number of risks you need to consider:
- buying a foreclosure may involve hidden costs,
- the buying process itself is risky, and
- the home might continue to lose value, even after closing.
While there certainly are risks that run with buying a foreclosed home, the most risky way to do it is also the least common method: at the foreclosure auction itself. As an auction buyer you often don’t have the opportunity to fully investigate the property to ensure that you are receiving clear title or conduct an home inspection to make sure you’re not getting a lemon. Most foreclosures are resold not at the foreclosure auction, but as an Real Estate Owned (REO) by the bank, listed by a real estate broker on the Multiple Listing Service.
Here are some tips to remember when purchasing a REO.
1. As-is means as-is, period. Banks have very little interest, inclination or even the logistically necessary resources to execute repairs on the property. Many of REO properties are managed by an asset management company in another state, and may not even
have a local person besides the agent who can handle large repairs. Generally speaking, bank-owned homes are sold on a very strict “as-is, where-is” basis, which means you should expect to take possession of it, if you buy it, in exactly the position and location it is, no matter how defective. Do not walk into a viewing of a foreclosed home, notice how the plumbing is all ripped out of the wall, and make an offer for it, assuming you’ll be able to get the bank to “fix” the issue later. Usually, if the bank is willing to do any repairs to a foreclosed home, they do so, on the advice of the listing agent, prior to the home being listed.
Out of hundreds of foreclosure transaction banks usually will only do repairs at the buyer’s request if the repair was to fix a health-and-safety issue; like a gas-leak or an electrical fritz. Most times, the property defect was highly non-obvious – not something even a diligent buyer could have detected visually prior to making an offer. Sometimes banks agree to a small price reduction due to surprising condition problems.
If the foreclosures you’re considering have obvious property damage, have your contractor stop by with you or gather whatever information you need to get as comfortable as possible with your offer price, assuming that the bank will not be chipping anything in for repairs, before you make the offer. The Diane O and Friends Team can help find a contractor that has the experience and expertise to provide a cost estimate for the repairs needed.
2. The bank speaks no evil. When it comes to real estate disclosures, the fact is, the bank knows nothing. Here in Tennessee the banks, has the owner of the property will offer the property without a Residential Property Condition Disclosure because as provided by the Tennessee Residential Property Disclosure Act the transfer is excluded because:
- This is a transfer of any property sold at auction
- This is a transfer of any property where the owner has not resided on the property at any time within three (3) years prior to the date of the transfer
- This is a transfer from a debtor in a chapter 7 or chapter 13 bankruptcy to a creditor or third party by a deed in lieu of foreclosure or by a quitclaim deed.
As with any home purchase we highly recommend that the buyer have the property inspected and thoroughly review the results. It is a must to have a property inspection, a HVAC inspection, a pest inspection, a roof inspection, a sewer line inspection, a septic inspection, a pool inspection, if you have a pool and care about its condition. Diane O and Friends has a number of skilled professionals who can assist you..
Yes – inspections cost money, but they may save you thousands.
- Vacant foreclosures often have their utilities disconnected most of the time it will be the buyer’s responsibility to turn on the utilities. We will work with you to make sure the utilities get turned on – even for a single day – so that your property inspector can run the water taps, test the stove and dishwasher, see if the water heater and electrical outlets work, and so forth.
- If appliances are there, the bank will probably leave them there, even though they may not have technical “legal” ownership of them, so they may not be included in the contract, like in a “normal” home sale. The bank will not give you any sort of warranty on appliances. You may want to purchase a Home Warranty.
3. The contract terms, vary with the time and location. From negotiating practices to which party pays which closing costs, every market is different, and Diane O and Friends are your experts for this information. If you’re buying a foreclosure the bank will often require you to sign their disclosures. READ every word of the contract and ask Diane O and Friends to explain anything that doesn’t make sense. If it is not written in the contract then it is not part of the contract.
4. Expect the unexpected. When you buy a foreclosure, our title company/attorney will be working with the bank’s attorney or title company and they may be slow or disorganized. The bank might rush you for your deposit money, but take their own sweet time coming up with the necessary signatures on their end to close the deal. You might expect that the bank would be desperate for buyers, and instead find out that there are 20 offers on the same REO. Or, you might be the only offer and still get your aggressively low (but still reasonable) offer rejected, only to have the bank reduce the list price of the home to the same price of your offer! (They often want to see if exposing it to other buyers at the new, lower list price might generate more interest and higher offers.) 
When you’re buying a foreclosure, expect glitches, expect your calendar to be derailed, expect the bank to be inflexible and possibly even unreasonable. What can make you powerful in buying a Foreclosure is if you are not on a time restraint.
Nashville TN Real Estate and Surrounding Area Specialists
When you are ready to Buy or Sell Property in Tennessee then you are ready for the Tennessee Real Estate Professionals Diane O and Friends. For more information about Diane O and Friends and our real estate services please fill out the online contact form or give us all call.
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Office: 615-371-1544
Diane Cell Phone: 615-406-2184
Mandy Cell Phone: 615-477-6959
Fax: 615-472-7931
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