Why You Shouldn’t Overlook Foreclosures and Short Sales
Often, buyers automatically avoid foreclosures and short sales. They see them as risky, dumpy real estate remainders.
But housing inventory is tight in many areas. At the same time, the poor economy of the past few years has produced more properties in foreclosure or offered in short sales. Many are perfectly fine properties sold as is at a discount. As with any real estate investment, there are risks—and rewards.
The Risks of Foreclosure and Short Sale Properties
In the case of a foreclosure, the bank sells the home “as-is” and requires the buyer to sign dozens of pages of documents releasing the bank of any liability. The worst-case scenario: You buy a foreclosure only to discover a major problem, such as a property line dispute or previous leaks that caused mold or dry rot.
With short sales, the owner is trying to sell for less than the loan amount, so they need the bank to approve the sale. Historically, banks are slow to give the thumps up. This can cause a buyer to wait for months for the bank to approve the short sale–only to have the sale rejected. Meanwhile, the buyer has missed out on countless other properties.
While there are risks in buying a distressed property, we have so much more information available on homes than previous generations had. Today’s Internet-connected, savvy buyer can a lot about foreclosed and short sale properties before making a commitment.
Distressed sales are often priced from 5 percent to as much as 15 percent below the current market value, too.
And foreclosures aren’t necessarily dumps. The recession impacted people in all income brackets. It’s not unusual to discover multi-million dollar homes in excellent condition and in good locations in foreclosure or offered in a short sale.
How to Minimize the Risks
* Search town records for previous building permits. Look to see if anything unusual was completed or planned for the property.
* Get the home inspected before going too far in the buying process.
* Ask neighbors for any information they have about the home, the neighborhood or the previous sellers.
* Look at the home’s previous sales records. If there was ever a contract on the property, there may be an inspection report. Have your agent call the previous listing agent to find out more about the former owners or the property.
* Negotiate with the bank. If you learn of a major problem with the house, negotiate with the bank for a lower price. Don’t forget: The bank isn’t in the business of owning homes. They want foreclosures and short sales off their books as soon as possible. As a result, banks will take you seriously if you’re well qualified and ready to close a deal.