Thursday, December 18, 2008
Take Off Those Rose Colored Glasses When Buying a Foreclosure--A Good Deal or Not?
According to the San Diego Business Journal 12/16/08, DataQuick reports that Foreclosures now make up the majority of home sales, 52.1 percent of transactions last month. A great opportunity for Buyers...or is it?
When you buy a Foreclosure or what they call a "REO", you will want to take off your rose-colored glasses and get ready to do some research. While buying a foreclosure property can be a great deal, the Buyer needs to BEWARE! The history of the house is unknown because the Bank Seller has not lived in it and thefore is not obligated, by law, to provide Buyers with any information that is normally disclosed by the usual selling homeowner. They do not know the neighborhood or the fact that the neighbor's dog may bark many nights. They do not know that there was a water leak and a recent insurance claim. They may not know that there is a crack in the foundation. This is why it is so important to have a Realtor® guide you through the process of inspections and check out any issues you have concerns on.
However, by law, the Bank Seller is required to provide you with any Material facts that they know of, including Meth labs, Lead Paint, and Megan's Law website information. However, quite often, understandablely they don't know anything about the property. They may not even be located in the state. They are also required to have smoke detectors and water heater bracing. No excuses there.
When buying a foreclosure you need vision. While you can get the home at a price below market value, you can expect that many of the homes will typically have deferred maintenence that could be very expensive. Most home owners losing their homes, are not putting money into a sinking boat. With vision, you can see the home fixed up. But remember that comes with a price.
In most transactions, the Bank Seller also expects the Buyer to pay for the termite inspections and any costs required to repair termite damaged wood and fumigation, if needed. The Bank Seller focuses on giving you a sales price that you will take the home "as is" understanding that you will have some work ahead. So you want to have a Realtor® that has a good grasp of the value of the comparable homes in the area and is able to provide them to you. Because ultimately, the Buyer makes the decision on the price.
While waiting for an accepted offer, it is not typically as long as a Short Sale (an oxymoron for a short pay sale). However, it is usually longer than the standard 72 hours Purchase Agreement period given to most sellers, but rather one to three weeks. None of the time frames for inspections or loan contingencies begin until after both Buyer and Seller have agreed upon terms and price in writing, an accepted offer.
While you are waiting for the acceptance you should begin gathering a list of referred licensed contractors (plumbing, electrical, roofer, etc.) that you may need to look at any major repairs for estimates. Down the road after you have gone through remodeling or major repairs, you don't to look back and say, "if only I had known."
Once you do finally get an answer, you may want to seek out legal advice. The Bank Seller normally has their own contracts written up by their lawyers. These contracts are definitely written with their best interest at heart. By law Realtors® , not being lawyers, are not able to interpret these contracts for you. Real Estate Agents typically use the standard Residential Purchase Agreements written by Lawyers who represent the California Association of Realtors®.
Once you feel comfortable with the contract and sign on the dotted line, then it is hurry up time. The Bank Seller will typically shorten the time periods alotted for the Buyer to do inspections, get their loans, and to close escrow. Usually the Bank Seller will stipulate a heafty fine if you close late. However, the knowledgeable Realtor® will keep the time frames on track and if at no fault to the Buyer, the agent may be able to get a time extension and delay late fines.
The one process that usually takes the longest is the loan process and can be addressed up front is the Buyer's loan. People are waiting in line to get loans, while lenders have cut back staff. You will definitely want to be preapproved and have provided your lender everything they need to get your loan approved in a timely manner.
The Foreclosure is a great opportunity for the Buyer who takes off the rose colored glasses and approaches cautiously.