KNOW THE PITFALLS
Every day we get calls from buyers looking for foreclosures. Many of these buyers are first time home buyers hoping to purchase a nice home at a bargain price. What many buyers don’t realize is that bank owned homes are often in less than perfect shape, especially those priced under $50,000. It is human nature to want a super-hot deal but when a home is priced less than a car there is a reason! It is going to be a fixer upper. The other factor to keep in mind when considering a foreclosed or bank owned property is that you will be buying the home in “as is” condition. The seller is not going to fix any issues and often the water, heat and electric are not on.
Because these homes are being sold as is and due to the fact that the utilities will not be on for the appraisal, your financing options are limited. Cash is your best bet but another option is a conventional loan with 20% down as an “in house” product, meaning that the loan won’t be sold on the secondary market. Small local lenders will be your best option.
With most real estate transactions, the seller is responsible for providing a 40-year abstract of title made from the records of the count clerk’s office. With bank owned properties however, the buyer is responsible for having an abstract made as typically the old abstract is not available. The transfer tax of $4.00 per $1,000 of sale price is also the buyer’s responsibility with a bank owned property.
Bank owned homes do offer a great option for those looking for a bargain, but be prepared to do some work as well. When working with buyers who are purchasing a foreclosed property I tell the buyers to prepare for the worst and be happy if the home turns out to be in better shape than expected. Also, look at the value of the property once it is cleaned up and once you have done some updates. It is likely that that you are purchasing the home well under market value so the fact that you will have some extra closing costs and perhaps some unexpected repairs shouldn’t weigh too heavily on your mind. For those willing to accept a little risk of the unknown a bank owned property can be a great option.