Ok, you already know my answer, YES!
Let’s start with, Should I purchase a Foreclosed (or REO) property?
There are a lot of Foreclosed properties on the market now and they will likely keep coming for months to come.
We all see the advertisements for auctions of foreclosed properties, “Opening bid starting at only $1000!”. wooohoooo, let’s go pick up 5 properties and make bank! Not so fast….
First, do you have any idea what that property looks like inside? In a Trustees Sale (that’s the sale of a foreclosure on the courthouse steps or Trustee location) you do not get to see what the property looks like inside. Sure, you can drive by, maybe look through the windows, but you don’t get inside. Is the water heater missing. Have the copper pipes been torn out?
If you go to one of those Huge REO Auctions that auction off sometimes hundreds of properties over a weekend, you may have had a chance to get inside a property you have interest in, that is IF you were able to get in on one of the few days they hold it open. If it seems like the property would be a good investment, you are probably not the only one! There will be many people at the auction bidding on that property and most of them have CASH.
Second, do you really think a bank is going to let a piece of Real Estate go for only $1000??
Not likely. That low price is to get you in the door and bidding. Have you heard of a “bidding frenzy”? It’s a bidding war that tends to result in overpaying.
Now, I’m not saying that happens with every property auctioned off, but it tends to happen to properties that are “popular” or seem to be good investment potential.
Sometimes at these big auctions, you may think that you’ve won a bid once the auctioneer says “SOLD! to the dude in the large hat!” Then a little later you find out that the bank didn’t accept the bid and you’ve wasted time & lots of emotion.
If properties don’t get sold at one of these venues, then they are put on the market the ol’ fashion way and listed with a Realtor and put on the MLS.
This way, everyone that’s interested has a chance to look at the property with their own Realtor and decide to make an offer or not. Usually, the listing realtor representing the Seller (the bank) will list the home within range of a reasonable selling price.
Now you’re wondering, do I want to deal with the bank and a foreclosure? Is this risky?
Will there be hidden costs involved?
There is no more risk than any other property and no, there will be no “hidden” fees or costs involved.
Yes, there are fees involved, just like any other Real Estate purchase, these are called “closing costs”.
The big differences in purchasing a Foreclosure from a bank v. purchasing a home in a “normal” sale from an individual are these:
A foreclosure is an “AS IS” sale. Meaning, what you see is what you get! The bank will generally not make any improvements on a home before they sell and if they do, they do it before it goes on the market. So, if the home you’re interested has been trashed, that is how you will receive the property, trashed. Hence the low selling price! In a “normal” sale, you could potentially ask the seller to make improvements which he/she may or may not agree to. Remember, you still get to have any inspections done to the property that you like (full home inspection, termite, HVAC, etc). This is one of the benefits of purchasing an REO once it’s listed on the normal market (MLS) v. an auction.
There are no disclosures with a foreclosure. Meaning, the bank (the Seller), has never occupied the home, so they can tell you nothing about it. In a normal sale, the home owner can tell you if they’ve had problems with the roof or a plumbing issue, etc.. So, when buying a foreclosure, again, what you see or don’t see, is what you get.
Purchasing a foreclosure usually takes a little longer than a “normal” sale. You will end up dealing with more paper work (usually documentation from the bank that covers them legally in every situation possible) which you should read thoroughly! You will deal with agencies (Title company/Escrow officer) that the bank chooses and you may be dealing with a seller (bank) that is out of state, which will add time to closing. Just expect the unexpected!
Whoo, sounds a little intimidating! It can be, but your Real Estate Agent is there to guide you through the process and will have your best interest in mind. Never be afraid to ask questions on anything you don’t understand.
Wow, I spent a little more time on that than I expected! Hope it wasn’t too long!
There will be more intriguing and demystifying information to come, to stay tuned and thanks for reading!!