Is a foreclosure right for you? Check out these tips from a realtor.
So there we were—my wife, our two kids, and me—squeezed into a small, three-bedroom, 1,300-square-foot rental home in Bath, Ohio. The inevitable had happened. We were busting at the seams, and it was time to move.
We expanded our search to various neighborhoods around northeast Ohio. But, every house we wanted was $100,000 over our budget. And, every house we could afford was 1,000 square feet under the space we needed.
After six months of searching, lady luck shined upon us in the form of a 2,200-square-foot home located in Hudson, Ohio—an affluent suburban neighborhood 10 miles north of Akron. Even better, it was two houses down from my wife’s parents. Can you say built-in babysitter?
It was the perfect house, except for one thing—it was a foreclosure that was now owned by the bank as a result of the previous owner’s failure to keep up on mortgage payments.
We took a walk-through of the house with a local realty company assigned to the foreclosure, and immediately put in a bid—which, thanks to the foreclosure tag, was much less than the estimated asking price of all the properties in the vicinity of the home. The bank accepted in less than three days.
Easy enough, right? Well, not so fast.
What seemed like a quick storybook ending to buying a foreclosed home was only the beginning firestorm of frustrating back-and-forth faxes and emails, endless gathering of personal paperwork, frantic phone calls—and months and months of waiting.
Buying a foreclosure can save you a lot of money and get you into a house you might not otherwise afford—there are clear benefits. Just be sure to consider these four things I learned from my own experience before signing on the dotted line.
1. It’s a long process
The bank that owned the foreclosure accepted our bid in early June and we finally signed the paperwork and moved into our house in late September—almost 100 days after our bid was accepted.
To say that the process was long is an understatement.
“In order to release the property to you, the bank has to go through many extra steps compared to a standard real estate transaction,” said Shannon Raimondo, realtor at Keller Williams Chervenic Realty. “For example, banks have to work with legal matters like liens, judgments, courts and have issues with the deeds.”
Keep in mind, these same banks also have other foreclosures they’re working on as well, which is why it takes days, weeks, and even months to review and approve all paperwork.
2. No negotiations
On our first walk-through, there were a number of issues that raised our eyebrows. All of the appliances were ripped from the kitchen and laundry room. There were numerous holes in the walls, faulty wiring throughout the house, and the rooms were painted this ghastly brownish-pink color.
“Most foreclosures are sold as is,” Raimondo said. “So, count on the possibility of major repairs, replacements and updating of common fixtures and infrastructure in the house.”
And, even though most banks require you to hire a home inspector, don’t expect the bank to fix any of those problems that may be uncovered in the report. At the very least, the report will let you know what needs to be fixed if you decide to buy.
3. The banks are picky
According to Raimondo, the perfect foreclosure customer is someone who can pay the offered price in cash and can buy the house immediately without having to wait to sell another home.
For our particular foreclosure purchase, the timing was perfect. My wife and I had worked hard to bump up our overall credit scores. We’d been renting for five years. We put in a higher bid than the offered price. And, despite not having cash in hand, we had a 10 percent down payment set aside and a secured loan ready to go.
“If you have a loan, the price is usually non-negotiable. And, the bank may either accept your offer or decline it without giving you a reason,” Raimondo said. “And if the bank receives a multiple-offer situation, they usually choose the highest bid that’s closest to or above the offered price.”
On a related note, if the house appraises lower than the offered price, then you (the buyer) will have to pay the difference, which is even more money that you didn’t expect to pay.
4. The house is empty
Most foreclosed homes have probably been empty for at least a year, if not longer.
That’s 365 days of no water running through the pipes, no normal heat or air conditioning, and no regular interior maintenance or lawn upkeep. And, there’s nothing around to deter the field mice, chipmunks, insects, and other critters from infiltrating.
“In my experience, people who are still living in a pre-foreclosed home before they’re kicked out are usually not taking care of the place,” Raimondo added. “And after they move out, the house just sits there for another year or so, which could lead to wet basements, roof problems, gutters, and other landscape and foundation issues.”
So, is a foreclosure the right choice for you?
It’s been almost two years since we’ve moved into our home. And although I’m sure there are a lot of horror stories out there, our foreclosure adventure had a very happy ending.
“Despite all of the hurdles, foreclosures are a great deal—if you have the patience and the money,” said Raimondo. “Especially if you’re an investor or a first-time home buyer.”
So, whether you’re choosing to buy a foreclosed home or building new, be sure to always keep your home protected with Progressive. To learn more about buying homeowners insurance for the first time, click here.