Foreclosures: How-To Guide for Buyers
When it comes to buying a foreclosure, there are many pros and cons. One of the most widely known benefits of purchasing a home that’s been foreclosed upon is that you can often score a better price. Because the bank or lender on the property is eager to settle the debt owed, foreclosed properties typically come with a negotiable asking price and an urgency to sell.
Throughout the process of purchasing a foreclosed home, it’s vital that you don’t allow any of these benefits to cloud your good sense. The process of purchasing a home is exciting, but don’t forget to cross your t’s and dot your i’s when it comes to inspection and other critical steps in the buying process.
Keep reading for everything you need to know about purchasing a foreclosed home.
Types of Foreclosures
Keep in mind that there are two types of home foreclosures: foreclosure auctions and bank-owned properties.
Any buyer's agent will advise against purchasing a home through a foreclosure auction unless you have previous experience. Foreclosure auctions are often sight-unseen, meaning you won’t be able to get into the home to evaluate any necessary repairs. Because of this, many homes sold at auction come with costly issues that drive up the overall investment.
The process of purchasing a bank-owned home is significantly more straight forward than buying at auction. Before signing any paperwork, buyers will have the opportunity to tour the home and evaluate any work that needs to be done.
Questions to Ask Your Buyer's Agent
It is highly recommended that anyone looking to purchase a bank-owned foreclosure work with a buyers agent to answer questions throughout the process and help negotiate final terms. Be sure to get answers to the following questions before purchasing:
What is the neighborhood like?
You can get answers to this question by driving around the community at different times of the day. Notice if you see young families walking around. What is the activity like at night? Are there nearby schools or parks? Where is the closest grocery store?
Along with this basic information, your buyer's agent can provide additional information about neighborhoods you are considering (average home price, local amenities, etc.) and maybe even recommend other areas you may not have previously considered.
Why is this home in foreclosure?
While this may seem like an invasion of privacy, anyone purchasing a home that is in foreclosure should factor the reason the home was foreclosed upon into their decision-making process. The buyer's agent can inquire on your behalf.
What is the market value of this home and how was the foreclosure price determined?
I’m important to know the value of the home so you can make an informed decision once inspections are complete. You will need to calculate your projected total investment before coming upon an agreed price with the seller. By inquiring on how the purchase price was determined, you will have a clearer understanding of the value of the home and how it compares to others in the community.
Has the home had any previous issues?
Ask this question in order to learn any critical issues the home may have. If there have been any issues with the foundation, plumbing, or electrical, these are important things to know before moving forward.
How long has the house been unoccupied?
Homes that sit empty are prone to a wide range of issues. With the potential for dried plumbing seals, electrical damage, or bug infestations, you may run into a major headache after closing. Ask this question so you can ensure you have a thorough inspection.
Inspecting a Foreclosed Home
One of the most important parts of purchasing a foreclosed home is the inspection. After your offer has been accepted, be sure to hire a home inspector who will make a thorough report of all the home’s potential issues.
An experienced home inspector will provide reports on the following:
Exterior issues including:
Interior issues including:
Other critical issues including:
While purchasing a home that is in foreclosure can require extra diligence, it is often worth the hard work. If you hire a buyer's agent that you can trust, you will be able to understand every step of the process and make an educated decision.
Use your home inspection as a tool to learn as much as possible about the home and to gain a full understanding of any imminent repairs. Issues like an out-of-date water heater or poor window seals may not be the end of your pursuit to buy a home, but being aware of these issues before closing may help you negotiate a better price. On the other hand, foundational issues or excessive termite damage may influence you to walk away.
Even though the process of buying a home in foreclosure requires extra work, it can be well worth the payoff. Above all, before sure to practice patience every step of the way and don’t sign any papers until you know you’ve found the perfect home.