HouseMaster reports there are abundant opportunities for qualified homebuyers in the current real estate market – triggered by the rise in foreclosure activity from past years – working through the intricate foreclosure market will be less difficult for consumers that properly prepare for the process.
"Properties in different stages of foreclosure represent opportunity but are also dangerous for the unassuming buyer," said Kathleen Kuhn, president of HouseMaster. "While potentially lower asking prices draw possible buyers to these homes, each property has its own challenges that can come from abuse, neglect or deferred maintenance from the previous owner. Consumers must do their homework to help them know whether a property is truly a 'good deal.'"
Not all foreclosures are a great buy and if consumers are not fully educated on the property or the process, a buyer could potentially make a poor investment decision. "Buyers must take proper precautions to ensure they are making educated real estate decisions, and are aware of property conditions that can greatly affect the home's long-term value," Kuhn added.
Kuhn said there are three primary types of foreclosure properties that the typical buyer should familiarize themselves with before making an investment in today's real estate market, and know of corresponding structural and physical attributes that can affect each.
Essentially a pre-foreclosure sale. Short sales occur when a home is sold generally at a reduced price by a seller who is facing foreclosure but has not been foreclosed on yet. The process is designed to create ideal outcomes for all parties involved - the seller avoids foreclosure, the buyer obtains a good price on the home, and the bank avoids the full foreclosure process and cost. Potential short sale buyers should be pre-qualified for a mortgage since banks need assurance an offer is solid and legitimate. Buyers should also have the home inspected before they make an offer, and again before closing. Despite the name, short sales can take an extended time to officially close and buyers typically find that several months have passed since their initial home inspection and the closing of the short sale. A re-inspection will identify any conditions that may have changed since the original inspection and check systems that may not have been previously accessible or operational due to climate or other issues. Any issues that are found during the pre-closing inspection can then be addressed with the bank before a buyer signs on the dotted line.
Real Estate Owned (REO)
A home that has been foreclosed upon and is now owned by a bank. These homes are prone to issues that are not as prevalent as other resale homes, generally due to lack of use and vacancy. When purchasing an REO property, potential buyers will likely deal directly with the former lender or agent representing the lender because the seller is no longer present. Lenders often sell REO properties in "as is" condition, which means that no repairs will be made to the home by the lender. If the house has significant defects, buyers can adjust offers by presenting the bank with a professionally prepared home inspection report highlighting the defects and the condition of the home or walk away from the deal.
Auctions tend to be one of the riskiest ways to purchase a home. Generally, a home sold at auction is being sold "as is", with little opportunity for inspection. Auctioneers will typically schedule limited times for interested buyers to view the properties but almost always a full inspection cannot be completed. These types of properties typically have no utilities turned on and do not provide access to important areas like crawl spaces or attics. "Buying a home through an auction is not recommended for the novice real estate buyer, as they are unable to get the access and advice necessary to make an educated decision as to potential serious and costly repairs that could make even a very low priced home a bad deal," Kuhn noted.
"Education is the key need when buying a foreclosed property," added Kuhn. "It helps the buyer understand their options allowing them to get the best house for reduced costs and helps to avoid making potentially devastating financial mistakes."
According to a recent study conducted by HouseMaster, there are five main physical conditions that are typically found in a foreclosed property.
- Moisture-related problems
- Defective gaskets, valves, and hoses that are leaking or have the potential to cause destruction
- Vandalism, especially if the property has been vacant
- Insect and rodent infestations
- Blocked or damaged waste and sewer lines
"Now is a great time to buy a home," adds Kuhn. "But, if buyers are considering properties in various stages of foreclosure, property inspections are very critical in making the right investment and getting the best deal."