Everyone wants the best deal when buying a house. No one wants to overpay for his future home. We’ve all seen news stories about the large number of foreclosed homes for sale. More and more buyers today ask their REALTOR® to limit their new-home shopping to only foreclosed homes. But is that the best strategy for finding your next home?
In a foreclosed-home sale, buyers usually have to purchase the home “as is” with the seller (usually the bank who owned the unpaid mortgage note), who then politely refuses to complete any repairs. Banks are in the business of loaning money and are not interested in being responsible for fixing leaky roofs, replacing broken appliances, or installing new flooring. The banks will usually allow a potential buyer to inspect the property to ascertain the condition of the house, but they seldom offer to repair defects.
Suppose you fall in love with a foreclosed home, pay a professional, licensed home inspector to inspect the property, and find “problems” with the house? Are you confident enough that the inspector found all the potential issues that you are willing to spend thousands of dollars for the down payment and closing costs to make the home yours? If the inspector visited the home on a nice, sunny Texas day, are you sure the roof won’t leak when the skies open up and we have a Texas “gully washer” rainstorm? Do you have the money in reserve to make the repairs?
Remember, you purchased the home “as is” and there are no guarantees from the seller about condition. Foreclosure proceedings in Texas may take two to three years to complete. Are you ready to spend your money on a house that may not have had basic maintenance and upkeep for the last couple of years?
Houses, just like automobiles and people, need routine attention to small maintenance details to remain in good health. Autos need oil changes, and people need exercise to remain in top performance condition. Houses are the same. Walls need paint, carpets need cleaning, furnace filters need changing, windows and doors need caulking, etc. If a previous homeowner could not pay for their mortgage while living in the house, they most likely did not have the money to care for the little maintenance items and small repairs that can quickly become major issues when neglected.
If you find the foreclosure house of your dreams, do you have the skills or the money to fix the items that may be broken? Suppose your dream home is listed for sale as a steal for $160,000 in a $200,000 neighborhood. Are you knowledgeable enough to accurately estimate the cost of repairs, and do you have the time, skills, or money to serve as the general contractor for repairs – or hire skilled professionals to complete the repairs for you? A house listed $40,000 under the neighborhood that requires $50,000 in repairs is no bargain!
And don’t forget to include some money for “unks” and “unk – unks” in your repair budget. Virtually no rehab or repair goes exactly according to your budget, so you must allow money for the “unknowns” that pop up, and to be on the safe side, you must also set aside funds for the “unknown – unknowns.” The “unk –unks” are the items that you didn’t even think about and later discovered that you needed.
For instance, after tearing out the wallboard to repair the leaky pipe, you discover that the wall studs have deteriorated due to moisture trapped within the wall. Termites, attracted by the wet studs, ate the adjoining studs, which could cause the second floor of the home to collapse.
While repairing the studs, you discover a crack in the foundation. While repairs are usually not that bad, there are always “unk – unks” that must be addressed and paid for somehow. If you’ve ever watched home repair shows on TV, you’ve seen virtually all repair projects experience the “unk – unks.” There’s no reason to believe your foreclosed dream-home repairs will be any different.
Don’t dismiss the possibility that an owner-occupied home might be perfect for you. Most likely, the homeowner has repaired the items that need fixing, maintained the items that need maintaining, and updated the items that need updating. An owner-occupied home may not be “perfect in every way,” but the roof probably doesn’t leak, the lawn is usually in good shape, and, if needed, any termites may have already been removed.
If you limit your search to foreclosed homes, you could miss out on the perfect owner-occupied home for you and your family.
The purchase of a foreclosed home may be a very good deal for some homebuyers. However, before making an offer on a foreclosed home, be sure you know your budget, your abilities to repair broken systems, and your emotional and financial limits for dealing with potential problems. Before signing on the dotted line, ask yourself … “Am I really ready to buy a foreclosed home?”
Shopping with a Texas REALTOR® for your next home could be the best homebuying decision you ever make. He or she is an expert at spotting potential problems, navigating the process with you, and pledged to represent your interests first and foremost.
Source: Realtor.org /Ron Schildknecht