Not all properties are created equal: What you need to know about defects in foreclosed houses
The real estate market is upending with foreclosure properties. The flood of inventory has spurned a keen interest from real estate buyers who are seeking a good deal.
With every type of real estate transaction, there are unique circumstances. There are also traditional methods and differences that only an expert educated in your needs should be helping you with. There is a difference between buying a house from the homeowner and buying a house from the bank.
A good read on this topic is a post from Kacey Sides and Andy Hodes, "Want to Buy a Foreclosure? Read this First." I recommend this read to anyone interested in purchasing a foreclosure property. As an avid reader of blogs, especially of the real estate kind, I took particular notice of two points made:
- "Keep your inspection period short."
- "Don’t ask for repairs."
This advice is the opposite of what is recommended when you purchase a house from a homeowner. I asked the bloggers of this post:
"I am curious about the inspection clause you mention and to have a home inspection up front. If there are material defects found or something wrong with the major systems and conditions of the property, will the bank repair as a Seller would be obligated to?
"Also, is the buyer in a foreclosure entitled to a final walk-through and do they have any recourse if they find something wrong?"
Hodes emailed me back soon after I asked the question, letting me know his answer was on the post. After reading it, I was quite impressed and wanted to share with Connect2Agent's Home Buyers and Sellers Blog readers. Hodes generously agreed. Here is his response to my questions:
"Hi Rebecca (and everyone else who’s interested)--with a foreclosure it’s essential to read the terms of the “Foreclosure Rider” or the “Foreclosure Addendum” required by the Seller/Bank. The terms in these documents supercede anything in your normal contract.
"Some banks require inspections done up front while others provide a 7- or 10-day time frame for the buyer to inspect and opt out. If the inspection reveals material defects, sometimes the bank will either repair them or offer a lower price or other concessions to the buyer. They have learned that once a problem is identified that the bank either has to disclose it (even if they are exempt from completing a disclosure) or repair it.
"They’d rather keep their current buyer on target for closing than start all over in a market where supply exceeds demand.
"So when a buyer finds a big problem, they should reopen negotiations or just walk away. Here in Chattanooga, in our experience, that is not always the case. The addendum typically states that you are accepting the property as is, so unless there are major defects in the property that would be unforeseen by an initial walk-through, like structural issues, etc., your offer should reflect what you feel it will take to restore the home.
"Most of the time, the bank will have it priced to reflect the need for repairs, but that is not always the case. Have your Realtor give you the comparables in the area to determine the equity in the home. That way, when your offer is accepted, if the addendums state that they aren’t willing to do any repairs, you are covered!
"Most addendums allow for a final walk-through to verify that the home is in the same condition it was at the time the contract for sale was accepted, but again be sure to read the addendum or rider carefully."
Buyers Beware
Hodes' response was refreshing, but it is obvious that in a foreclosure, you might not be able to get the same concessions as when you purchase from a homeowner. As with all things consumer, do your homework and research, don't be afraid to ask questions and get help from a local expert.
If you liked this post, you might want to read:
- Do homeowners deserve to be foreclosed on?
- The top tips for buying a house at an auction
- Homeowners: How to detect foreclosure scams
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Posted by Rebecca D. Levinson
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