Avoiding Shortsale and Foreclosure pitfalls

According to Trulia.com, roughly forty percent of homes on the market today are either shortsales or foreclosures.  While this may be a buying opportunity to the savvy and patient buyer, purchasing these type of distressed properties usually come with one headache or another.  If these are the type of properties you are looking at, the best defense to becoming stressed, is to educate yourself of the common pitfalls that come along with these transaction.

So what are the common issues.  To begin with, buying a shortsale of foreclosure can take a long time to close.  The banks usually require more paperwork and approvals than a typical home sale.  Then there is the belief that banks will take almost any low ball offer.  Usually not true.  Banks still have a responsibility to getting the best price they can for the shareholders.  Most are not giving away their property.  It's important to sit with your broker and present and reasonable offer that move the sale along.

Another major complaint, the last minute cancellations or postponments of the deal.  You may think that everything is done, but at the last minute the bank needs more information.  Staying flexible is key to not being stressed.  And that leads to what Trulia calls the "Banks Black box."  Trying to get answers on an offer, or what documents are needed can take not only tremendous effort, but can also take days or weeks to get your answer. And finally, the Banks double standard.  They can generally take as long as they want with their process, however, when they are ready, they are ready to get the deal done and you the buyer, need to be ready to sign the documents and hand over your funds.

These are the top five complaints of dealing with Shortsales and Foreclosures, and you can read more about these, and how to handle the stress here.

And, as for every home you buy, whether it is a distressed property or not, a home inspection is always recommended to avoid getting more than you bargained for.

Don't buy a distressed property without this....

With all of the distressed real estate available out in the marketplace(REO's, Short sales, etc) one might find it very tempting to jump in and try to snap up some bargain properties. Whether you are a seasoned real estate investor, or a newcomer to the field, caution must be taken when evaluating the property. Unless your intention is to completely tear down what you are buying, a complete home inspection is a requirement.

Many of these REO's and Short sales are advertised "As-Is". With this in mind you may say to yourself that there is no negotiating with the bank, so why bother with a home inspection. The answer is very simple. First off, a home inspection is not really meant to be a tool for negotiations on the property. It is indeed less of a negotiating tool with a foreclosure property. A home inspection will give the buyer a complete picture and understanding of the true condition of the property. For example, with today's conditions, many foreclosures sit empty for many, many months, sometimes even years. With the lack of maintenance on that home, numerous issues may certainly arise. Some common trouble spots found are:

Moisture intrusion and mold 

Termite damage in main beam

Non functioning mechanical system

Cracked or burst water pipes

Missing piping due to vandalism (cooper mainly)

Electrical issues

Structural damage

A recent foreclosure we inspected revealed a main bean that had been severely compromised due to termite damage and definitely needed to be replaced.

The bottom line is that just because a home is being sold "As Is", and the bank won't negotiate on its already low low price, doesn't mean that it is a bargain. Many of the foreclosed homes we walk into, have so much damage and repairs needed, that the buyers ultimately realize that its a project that will be to big, and much more costly than they could have even imagined. Buyer beware...do no forgo a home inspection...it may cost you much more that the inspection fee.

How's My House Home Inspections serves your full inspection needs for distressed properties. We work with out of state investors and serve as eyes and ears for those transaction.

Get the facts on foreclosures from the horses mouth

Not a horse literally, but from the mortgage giant Freddie Mac.  They may be blamed for a portion of the mortgage and real estate mess that this country is experiencing, but it seems they are stepping forward and putting together a series of You Tube videos to talk about the facts surrounding homeowners that have gone through a foreclosure or are in the process.  The series titled "Foreclosure fact from fiction" reveals some of the misconceptions surrounding foreclosure, such as, not being able to own a home again.  There may be some pearls here to help your clients.