By All home buyers have one thing in common: Everyone wants a great deal. The buying public seems to think that “great deal” equals foreclosure, short sale or bank-owned property. The truth is that these properties may appear to be bargains, but in many cases you could be buying someone else’s problems. So the real issue is whether the foreclosure, bank owned or short-sale property you’re considering is a bargain or problem. If you’re looking for a bargain property, here are some key issues to consider:
1. What is your time line for purchasing?
You may find the perfect short-sale property, and the seller may accept your offer. The challenge is that you don’t have a deal until the bank approves the short sale. At many large lenders, a single short sale processor may have hundreds of files to handle at one time. I’ve experience delays of up six to get an offer approved. The wait can be extremely frustrating and it can also be costly.
For example, months from now the offer made today you may be too high or to low. Also, interest rates are more likely to go up rather than down during the coming year. And, just because the seller has accepted your price, it doesn’t mean the bank will. You will have a better shot at buying a short sale where the bank has preapproved the sales price. It still may take a long time to close, but not as long as it would if the price was not preapproved.
2. Are you prepared to be in a multiple-offer situation?
You’re not the only one looking for a “bargain.” Many buyers are searching for distressed properties and the approval process takes so long, multiple offers are common. The sellers agent or lender will not tell you about the details of other offers.
If another offer comes in at a higher price and at better terms, the bank is obligated to take the best offer. If the property is a short sale, the seller’s signature on the document merely opens the negotiation – it does not finalize it. Furthermore, the seller/lender may continue to market the property even after they have signed a contract with you.
3. Ask the agent if the seller participated in the “Cash for Keys” program
The best candidates for good bargains are those properties where the sellers are still occupying them. Many banks have a program called “Cash for Keys.” This program pays the owners of foreclosure and short-sale properties money to keep the owner from trashing the property when they move out. It’s not uncommon for disgruntled owners or tenants to remove or damage appliances, plumbing and electrical systems. Cash for Keys is designed to minimize these behaviors.
4. Beware of tenant occupied and vacant properties
It’s never a good practice to purchase a property without doing a physical inspection. Also, be sure you have stipulated the right to make a final inspection prior to closing. This is especially important with distress sales. Also, if the property is tenant occupied be sure the contract states the property must be delivered to you vacant. Trust me, you don’t want to be responsible for evicting a tenant. Also, the longer a house stays vacant, the more likely it is that problems will develop. Not only vandalism, but rats and mice are more likely to move into vacant properties. Rodents can chew through the wiring and generally wreak havoc with the home’s electrical systems.
5. Is the deal more important than your lifestyle?
A property can be a great deal in terms of the price, but is it worth it if it’s in a poorly rated school district or if you end up with an extended the commute? A “bargain price” won’t make up for a poor floor plan, airplane, train or traffic noise or the occasionally whiff of the sewage treatment plant? When you purchase, it’s important that you take all of these issues into consideration rather than focusing exclusively on the price. A property with any of these types of problems will be harder to sell in the future.
As you can see, it’s important to consider the price in conjunction with the quality and the convenience of your lifestyle once you move in.
Of course there are good distressed property deals out there. Nevertheless, don’t limit your search. Keep in mind that, depending on the neighborhood and price range, anywhere for 10 to 50 percent of the sales may be distress sales. This means that 50 to 90 percent of the available homes are likely occupied by owners that are maintaining their homes and in better neighborhoods. In the long run, they may be a much better bargain.
A true bargain is when you find a home in the neighborhood and price ranges that fits your lifestyle. A house you will be proud to call home.
