You want to buy a bank-owned property. Your friends, family, mailman, dental hygienist ... even your Realtor have told you that the foreclosure market is where you pan for gold in this market. Lo and behold, the hygienist might actually be right this time (bummer about that last hot stock tip, though).
I am actually a late convert to the bank-owned frenzy because I have long been wary of purchasing property that lacks the standard disclosures, maintenance ... and humanity, if you will. Up until recently, it was often a mad rush for fool's gold, as well. The allure of "cheap" often masked an unreported truth: many foreclosure properties were actually priced at, or even above, market value.
Well, the worm has certainly turned. So much so, in fact, that I find myself seeking out the bank properties first in many instances as both the quality of the homes and value built into the prices have caught up with the hype. As more and more homeowners lose properties, it simply follows that they won't all be meth labs with peyote smoking derelicts squatting in underground bunkers in the backyard. Not all have had the A/Cs, appliances, cabinets, etc ripped out by the spurned former homeowner on the way out. Some folks have simply fallen on hard times, and have lost a perfectly habitable home to a bank that already has too many on its books. Thus the fire sale prices.
It can feel predatory, or at least akin to scavenging, to prey upon the misfortune of another, but buying up these lower end (pricewise) homes is critical to the health of the housing market. Until the excess glut is absorbed, supply will remain hopelessy out of whack with demand and values will continue to stagnate. As will the careers of countless professionals whose livelihoods depend on it. Realtors (I know, I know, we're cockroaches who will survive a nuclear housing holocaust), mortgage brokers and bankers, contractors, home inspectors, marketing reps, the sign guy, title officers, escrow officers, affiliated vendors, loan processors, underwriters, document couriers, secretaries ... it is absolutely staggering when you consider just how vital the health of the Real Estate market is to the vibrancy of our economy at large.
Buying a foreclosure home is a community service.
So, now that you have settled your qualms about purchasing a foreclosed property, there are a couple of things that you should bear in mind. We all know about the big hurdles with bank-owned property, I even touched on a few. Aside from the typical pitfalls, however, I'd like to address an area that most never even consider.
You may just get such a tremendous buy that you will get hammered unexpectedly on property taxes and homeowner's insurance.
Case in point, suppose your super duper agent finds a pocket of homes that were selling for over $1 million in 2006-2007. You jump on a smoking deal in the $500,000 range. Be prepared to pay property taxes based on the assessed value from the last year.
In other words, you are paying million dollar taxes on your new half million dollar home.
With the huge price drops, the tax evaluations have not caught up with the market yet. New evaluations come out in February, but they still might not accurately reflect the current landscape. As such, you must be prepared to ride out at least a year (this year's evaluation is prepared for next year's taxes. The die is already cast for the current year) with seemingly excessive taxes. You can bet that the county and city will act to offset the reduced property value with a higher tax rate as well. With the budget depending upon our taxes, they are likely to decline, but perhaps not as much as one would expect.
Homeowner's insurance could prove to be a higher than expected expense as well. The primary reason for this is the replacement cost of the structure. Some properties, especially newer custom homes, are selling for such bargain level prices that the sales price is not reflective of replacement cost. As such, while you might be expecting an insurance quote to strictly adhere to the sales price of the home, that is not necessarily accurate. You can't rebuild a million dollar home for 500k. Who said I slept through math class?
There are additional possibilities to consider such as HOA reserve/beautification impounds that may be required of a buyer at closing for high-end communities.
As with any purchase, value is dependent upon a confluence of variables. The opportunity for tremendous savings in the purchase prices of bank owned homes will typically outweigh many such potential bugaboos, but they can be far from incidental if you discover unforeseen expenses while sitting around the closing table.
So dive right into the foreclosure market if you are looking for a buy, but buckle your chin strap and call your trained Real Estate professional. You don't want to try this stuff at home.
Don't get bitten by what you didn't know you don't know.
Start your Scottsdale bank owned property search!
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