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Foreclosures Pros and Cons
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If you are thinking about purchasing a foreclosure there are some important things to keep in mind. While each bank is different, these are some general guidelines which often hold true. This is not intended to scare you away from foreclosures, but rather information to help you understand the process.
Price: Foreclosed properties are generally priced to sell quickly, and the current owner, usually a bank or lender, has no personal attachment. Therefore, they will not be offended by a low offer and are typically willing to deal. You can get a great deal on a property but there are some strings attached.
Negotiation: Banks are not like typical Sellers. It is often difficult to understand what logic they follow and why they respond as they do. They can often seem unreasonable.
Hidden Fees: Banks will sometimes charge re-key fees and charge for winterization, and de-winterization of the property. Sometimes they will charge you for title insurance as well. Other fees are possible. If they do not charge a re-key fee they will often not give the buyer keys at closing. It is the buyers' responsibility to have the property re-keyed after closing.
Repairs: It is sometimes difficult to see the rational in what banks are or are not willing to pay for. Sometimes they will pay for safety issues, such as radon mitigation systems, removing mold, or arsenic filters, but this is never a guarantee. Sometimes no matter what the inspection turns up, they are unwilling to pay for repairs because the contract states “as is.”
Inspections: The bank as an owner has never lived in the property so they cannot tell you if there ever was a fire, or water damage or other hidden issues. Therefore is extremely important to have a thorough inspection of the property. Also, banks often will give you less time to do inspections than most sellers. If you miss your window to do inspections and raise issues with them in writing, you will have lost your opportunity to ask for money or get out of the contract base on issues that the inspection turned up.
Addendums: Banks have a set long of addendums to the contract and they often are difficult to read. They typically state that they have no knowledge of any issues, regarding lead paint, mold, radon, structural issues or any other problems with the house. The house is sold “as is” and they are under no obligation to fix anything. These addendums give the Seller a number of ways to get out of the contract, and the Buyer very few. They will not accept any changes to these addendums, and they must be signed to go forward with the sale.
Communication: Often with the bank, there will be a listing agent, a relocation agent, and a representative from the bank. This long chain of participants slows communication down and banks are typically not that quick to respond in general. Sometimes you can wait a week to get any response.
Title: The bank gets to choose what title company it wants to use. This title company is often swamped and does not respond quickly to requests which can make the few days before closing not as smooth as one would hope. Also, they are often not local.
Short Sales
A short sale is where the seller owns more on the house than it is worth. Therefore, in order to sell their home the seller must negotiate any offer with the bank and have some of the debt forgiven. With a short sale you may be able to get a good price on a home. However, when you make an offer there is no guarantee that the bank will actually accept your offer. It is also difficult to estimate how much time the bank will take. Short sales can take anywhere from 1 month to a year. If you are on a tight schedule short sales may not be a good option. |
