Mistakes to Avoid When Buying a Foreclosure
Foreclosure filings were reported on more than 1 million U.S. properties during the first half of 2012, which means there are plenty of opportunities for those who want to invest in the foreclosure market.
Be aware, though, that purchasing a foreclosure can be complicated; costly mistakes sit in wait for would-be buyers who have not done their homework.
Zillow polled some real estate agents to learn about the most common mistakes they see when it comes to buying foreclosure properties. Here are their tips to help you avoid costly blunders:
1. Don't limit yourself
It's OK to go into your property search with the intent to purchase a foreclosure, but don’t wear blinders and assume those are the only homes you should check out. Yes, there are some competitively priced foreclosures on the market, but the same can be said of traditional listings.
Foreclosures often come with baggage – liens against the property, repairs that need to be made, and so forth. A traditional seller might be more flexible about taking care of repairs or negotiating price. Additionally, if you limit your search to foreclosed properties, you may not end up in your desired neighborhood or with the style of home you’ve always dreamed of.
Don't rule anything out. Keep an open mind so you end up with the best house for your money.
2. Don't go it alone
Find a real estate agent versed in the complexities of the foreclosure market. Whether you're looking at a pre-foreclosure, short sale or bank-owned properties, you’re going to need the guidance of a professional who has a background in buying and selling these types of properties in your local market.
Similarly, you must remember that real estate agents are not lawyers. Foreclosure laws and regulations are tricky, and they vary from state to state. Don't rely on your real estate agent for legal advice; be prepared to consult with a local real estate attorney who understands how these purchases work.
3. Know your stuff
Know how much you can spend. Know the neighborhood where you want to buy. Know the process. Securing early financing is important because it will ensure that you are qualified to purchase the property. Being pre-approved will give you greater bargaining power when the time comes to make an offer.
Target a specific neighborhood or two to avoid becoming overwhelmed by listings. Ask your agent to notify you of listings within these neighborhoods that meet your other criteria, such as size and cost. Check comparable recent sales to get a good feel for the market.
Even though you’re working with a qualified agent and lender, you need to do some work upfront to become familiar with the basics of the foreclosure process. Learning the lingo will give you credibility, which will help others realize you’re serious about this buying endeavor. Basic know-how may give you the added bargaining power you need to negotiate a better price.
4. Don't skip the inspection
Sure, the house looks good, but what’s going on inside the walls and under the floor boards?
A 2011 survey conducted by Harris Interactive found that 72 percent of U.S. homeowners agree the home inspection they had when they purchased their current residence helped them avoid potential problems; 64 percent of respondents reported that their home inspection saved them money.
The American Society of Home Inspectors website (www.ashi.org) includes a searchable database of certified inspectors.
Tag along while the inspector is looking at the property. Ask questions. Take notes. Most inspectors charge $300 to $500 for their services; it’s up to you to figure out how much it’s going to cost to rectify deficiencies.
5. Look beyond today
Because a foreclosed home may decline further in value, it's smart to approach the transaction with a long-term perspective. Sure, you may be hoping to flip the property and quickly resell, but what if you can’t? Are you prepared for the long haul? What will the property cost if you hold onto it for five or 10 years? Pencil out the numbers, or you may suffer long-term financial repercussions.