Foreclosure Sales – Worth the Extra Effort

In the current economic climate, foreclosure sales are increasingly common.  Frequently these properties are appealing because they are priced to sell, often well below market value.  However, there are several obstacles and pitfalls that a buyer can expect to encounter.  The savvy buyer knows that forewarned is forearmed and approaches the purchase of a foreclosure property accordingly.


In a foreclosure purchase, the buyer is dealing with a financial institution rather than one or two individuals.  The inherent bureaucratic (chain of command) and pragmatic (maximizing return and minimizing loss) differences typically result in longer turnaround times for the initial purchase agreement, subsequent changes and processing of final papers.  The home buyer should not be surprised if it takes as long as a week or two for a response to their initial offer as their offer must go through several layers of approval at the financial institution.  During this time it is not uncommon for the bank to contact other interested parties in an effort to start a bidding war.  Buyers should be prepared for this process to take time.


Again, since the seller is a financial institution, foreclosure properties are almost always sold “as is,” meaning there will not be allowances for upgrades or improvements nor are adjustments likely for any structural or safety issues that may be uncovered during a home inspection.  Nevertheless, the buyer should pay for a professional home inspection and be present during the inspection to ask questions and understand what exactly they will be looking at cost-wise.  Chances are a foreclosed property has not been well-maintained for quite some time.  It may still be a wise investment, but the buyer will need to take the home’s condition into consideration when determining their offer.


The buyer will need to pay for the home inspection and may also need to arrange (and pay for) having the utilities connected and disconnected for the inspection.  Financing can be affected by the inspection findings.  FHA loans, for example, have strict requirements about the conditions of the purchased property including, among others, the home must be free of mold, peeling paint and broken windows; railings must be tight; electricity to code; and the roof must have at least three years’ wear left.  Any relevant issues must be fixed prior to closing for FHA to approve the loan, but there are risks to a buyer making improvements to a property they do not own.


Again, since the sale will be “as is,” there are no guarantees or warranty on the property. The buyer can consider purchasing a home protection plan for peace of mind.  There are exceptions and exclusions, however, so the buyer should read the fine print before enrolling.  


The inherent complexities of the foreclosure sale also increase the likelihood that the closing will be delayed given the amount of paperwork, number of people involved, and the increased signatures required to sign off.  Buyers should anticipate a delayed closing and be aware of the daily cost incurred by the buyer if they are responsible for the delay.  Sellers typically have no penalty for delaying closing and therefore less of an incentive to close on time.  While this doesn’t mean a delay is inevitable, it behooves the buyer to insure they have everything in order for a timely closing as well as setting a realistic closing date from the beginning.  Buyers should plan on retaining their current residence for at least a week or two past the planned closing date in the event of a delayed closing.


Despite the additional complexities involved in purchasing a foreclosure, the possibility of getting a great deal on the home of your dreams makes it worth the extra effort.  Working with a Realtor experienced with foreclosure purchases can help the process go smoothly from offer to closing.

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