Foreclosures: Some Things to Know
- Buyer Beware – Foreclosure properties widely vary in condition and purchase terms. Generally, distressed property is sold as is/where is without any warranties expressed or implied. Home Inspections are often for informational purposes only and generally banks are not going to cure material weakness associated with the property. Thus, it is sometimes advisable to have a home inspection conducted prior to making an offer on the property unless you are willing and able to accept the property in its current condition with or without serious defects.
- The Waiting Game – A foreclosure sign does not mean that the bank is willing to give away the property. A lender often begins with a list price believed to be below market value and will then systematically reduce the property’s price in accordance with the length of time the home continues to be active on the market. For example, a foreclosure property priced at $100,000 in May may be reduced to $92,000 in June and $85,000 in July and so on until the property sells or it is taken off of the market for auction. However, during the price reduction process, banks generally look for offers within 5% to 15% of the list price. Thus, if you see a distressed home listed at $100,000 but would like to purchase it at $50,000, chances are you will need to wait until the bank reduces the list price down to a range within 15%+/- of $50,000 and this reduction process could take six to eight months +/-. However, there are exceptions to this waiting game. Many banks do not reduce the price of their properties as quickly as the example I provided and some banks sit tight on their price without allowing for a lot of reductions while others are motivated to unload property after 120 days on the market.
- Paperwork – Expect to review and sign several lengthy Bank ddendums over and above the Virginia Association of Realtors Contract to purchase. You may want your attorney to review the Bank Addendums prior to signing the documents.
- Owner Occupants are Usually Given Priority over Investors – There is usually a time period that Owner Occupant offers are given priority over investor deals especially when the properties are held by HUD, Fannie Mae or Freddie Mac.
- No Strings Attached Offers – Banks are not looking to make concessions to you for the purchase of a foreclosure. This means that banks are looking for clean contracts with little to no contingencies with the exception of financing contingencies. Sometimes contingencies for termite inspections or even home inspections are accepted but it is highly unlikely that a bank would accept a contract contingent on the sale of current property.
- Each Deal is Unique – Be prepared to learn something new with each foreclosure property that you pursue. Banks differ in their offer requirements, addendums, terms of sale, frequency of price reductions and so on.
In summary, there is a lot to know before you begin the process of purchasing a foreclosure and there are pitfalls you want to avoid that have not been discussed. It is important to have an experienced Buyer Agent who is familiar with purchasing foreclosure properties to assist you. Please contact me if you would like more information on foreclosure properties in central Shenandoah Valley in Virginia or would like to hear more about how to purchase distressed properties. I would be very happy to assist you.