Short sales and foreclosures can be great opportunities for fixer-uppers, investments, or even a move-up buyer but there are many unique situations that occur with these types of properties. In this article, we will discuss what you need to know before you buy a distressed property.
Foreclosures
In most foreclosure properties, you are buying a home in an “as-is” condition. Unlike a typical real estate transaction, the owner of the property has never lived there and takes no liability for anything that may be wrong with the property. These properties also called Real Estate Owned or REOs, are mere statistics to the bank. They have no emotional attachment and typically won’t participate in any major negotiations. So, the obvious risk is that there could be some major issues with the property that aren’t uncovered until a later time. These homes often have substantial deferred maintenance, may have been uninhabited for a long period, and may even have animals taking up residence. So, you’ll need to go in with an open mind. The benefit to these properties is that underneath the rough, dirty first impression, you can find a lot of diamonds in the rough. And, because these homes are often offered below market, you can also find a few deals. But, the most important thing to remember is that not every foreclosure is a good deal or a diamond in the rough.
Short-Sales
Short-sales became common during the recession when many homeowners owed more on the home than the home’s current market value. So, let’s say the homeowner purchased the home at the height of the bubble. They paid $450,000. Today, the home’s value may be considerably less. Based on other market sales in the area, the home may only be worth $375,000. In this scenario, the seller must go to their lender to approve any sale that is below the current amount owed to the bank. The bank has no obligation to approve any sale of this type, but many banks have been inclined to let these properties go, to get them off the books. However, the bank may take months to approve the sale. So, you as the Buyer, are in complete limbo while you wait to see if the bank will accept or reject your offer.
While there are risks with buying these types of properties, there can be some up-sides. First, distressed are often priced 5-15% below current market value. Second, the recession impacted all income levels and demographics, so it’s still possible to find multi-million dollar homes that were foreclosed on or in short-sale. Third, there are a variety of on-line tools and resources you can use to find out more about the property, so do your research!
If you are interested in locating a distressed property, like a foreclosure or short sale, contact the buyer’s division of The Donnelly Group! We’ll help you find what you’re looking for and remember, every team member of The Donnelly Group is devoted to effectively communicating with you throughout the entire process!