Buying An REO? Better look closely!

The REO market is hot these days, and bargains abound. Investors with cash to spend are snapping up bargains priced properties for "flipping" and first-time buyers are being given the opportunity to actually purchase an affordable home within their price range.  This is a wonderful thing and, at this point, seems to be the bulk of the transactions occurring in this high inventory market. At least that's what I'm seeing in my home inspection business.

While there are bargains to be found, some caution is advised.  After doing hundreds of these type of inspections on REO's, a pattern is evident.  That pattern is, these homes are often "trashed" and have many hidden defects, and even sabotage, that may not be evident in a 10 or 15 minute walk through.  The financial "bottom line" facts are, if you're going to lose your house anyway,why spend money to maintain it in its best possible condition?  If you are upset because the bank is evicting you, why not "get even" by leaving a few surprises? Additionally, many of the REO's I have inspected were rentals, and it is common knowledge that a rental is seldom maintained as well as a property that you're actually living in.

Given these facts, it is very strongly recommended that you do not forgo a thorough professional inspection by a qualified Home Inspector.  Yes, I know, the bank isn't going to fix anything!  But proper due diligence, and just plain good financial practices say that you should really have a full understanding of what you are buying and what future costs are likely to be going forward.

Don't let the dollar signs of "future profits" cloud your good judgment.  That "steal of a deal" may not be a steal after all if it will take $100,000 to make the house marketable if you intend to flip it, or use it to start your real estate empire of rental properties.

Here in Los Angeles, as a landlord, you have a much higher standard to maintain on a rental property than you might maintain on your own property.  Heavy penalties, stiff fines, and even jail time can be the future of a "Slum Lord."  The Department of Housing can be brutal!

Over the last six months or so, I have seen many properties that have really suffered from lack of maintenance and outright sabotage.  You may have seen them too.  I have walked in the front door of many houses, only to have my jaw drop and my first comment be "where the heck is everything?"  No kitchen cabinets, no plumbing fixtures, no light fixtures, all the doorknobs are gone, sometimes even the furnace and the A./C!  These deficiencies are pretty obvious.  They should also be a red flag that there may be a lot more going on that you don't see.  I have found intentionally shorted out electrical wiring, open plumbing connections, sewer lines filled with concrete, dead animals under the house and other disasters waiting to relieve the the unwary buyer of their hard earned cash.

Next time, when the Home Inspector refuses to turn on the power or the water you will know why. It is the responsibility of the seller of the property to make it ready for inspection.  That includes making sure All the utilities are turned on and functioning.  CREIA Standards and Practice do not allow an Inspector to turn on any utilities that are turned off. if you choose to ignore the experienced recommendation of the inspector, you may be putting yourself at risk.  I would suggest that you do not do this and I expect your office manager would concur.

I would also suggest that you verify that the utilities are all on and functioning before scheduling the inspector.  In my case, if I'm called out for an inspection and the utilities are in fact, NOT on, I cannot in good conscience complete the inspection. I will inspect that portion of the property that I can inspect and report on and charge the full fee.  If, subsequently, I am called out to complete the inspection when the utilities are turned on, THERE WILL BE AN ADDITIONAL CHARGE.  I cannot work for free.  Will you?  I'm not sure who the quote is attributed to, but it goes like this; "Trust, but Verify".  Wise words!