Buying a foreclosed property may not save you as much money as you think. Sure, you may get a great deal upfront, but what does the home need to make it livable? What issues does the home have? You may not even know until you buy the home and take possession of it. At that point, it’s too late – the home is yours. Before you find yourself stuck in a money trap, learn the top things to do when buying a foreclosed property.
Inspect the Property
If you buy a foreclosed property at auction, this could be tough. Typically, you buy the home sight unseen. In other words, you must make an offer without seeing the home’s interior. Chances are if the home was vacant and is in foreclosure, the previous owners didn’t take care of it. In fact, chances are also pretty good that they did some damage to the home. Not finding out until after you own it could be financially detrimental.
If you think the home will sell at the auction, pay for an inspection. That’s your only recourse to know what the home needs. If the inspection comes back showing that the home is in poor condition, you may want to reconsider your decision. Now, if the home didn’t sell at auction and is now a bank-owned property, you should be able to see the home’s interior. You can then decide if paying for an inspection ahead of time is necessary or if you can wait until after the bank accepts your bid.
Check the Home’s Title
Before you make a bid on a foreclosed property, check out the home’s title. This information is public knowledge, so it’s easy to get your hands on. In fact, some counties even publish the information online. If they don’t, you can always visit the courthouse to get the information.
It’s important to know if a home has liens on it. The liens transfer with the property. If there are any liens except the mortgage liens, they’ll become your responsibility. Rather than taking a chance, take the time to check the home’s title. If you need assistance, talk with your real estate agent or the clerks at the courthouse.
Get Estimates on the Work
If you know what the home may need, get estimates before you make a bid. Knowing what the home may cost to fix up can weigh in on your decision. If it will cost too much, you may want to reconsider your decision to buy it.
Don’t rely on quotes from one contractor, though. Shop around as each contractor will have different fees and timelines. The time the work will take should play a role too. Some contractors may seem really inexpensive, but need a much longer timeline than you’d like. These are both factors you should consider before bidding on the home, especially if you plan to live in it or flip it and sell it.
Know the Value of Homes in the Area
The foreclosed home will likely cost less than the actual value. Knowing a home’s market value will help you decide if it’s a worthy purchase. Just because you pay less than the home’s value doesn’t mean it won’t cost you more in the end.
Think about how much the home will cost to repair. Take those costs plus the purchase price into consideration. Now compare it to the average value for the area. Is it comparable? Will you come out ahead or will you invest more in the home than the average value for the area? If you end up upside down right away, it can be hard to get out of it, especially if you buy the home as an investment or to ‘flip.’
Work With a Realtor
We can’t stress this enough – work with a realtor when you want to buy a foreclosed property. If you want to buy a home that is going to auction, you have no choice – only realtors can place the bids. If you want to buy an REO (bank-owned) home, a realtor can help you through the process.
A realtor with experience in foreclosures can guide you through the process. He or she may be able to tell if a home is a good investment right off the bat. Realtors often have inspectors experienced in purchasing foreclosures too. If nothing else, a realtor can guide you through the process, making sure you do everything you need to in order to protect your investment.
Buying a foreclosure can save you money, but it can also cause a lot of unnecessary stress if you aren’t careful. Take your time and take the necessary steps to ensure the purchase is a good one. This way you can make the most of the purchase, whether it’s your primary residence or an investment.