The Real Deal on Foreclosed Properties

The way the real estate market has behaved – amidst and after the recent economic downturn – there’ll be plenty of opportunities for qualified homebuyers – not just in the Chicago Metropolitan Area, but in various states across the nation. According to HouseMaster, one of the largest organizations for home inspections in America, the market has seen a 28% rise within one year on foreclosure activities, with more and more prospective buyers finding it easier to prepare for the process of acquiring properties following a default on mortgage.

There is one danger that buyers in the foreclosure market have to be aware of, says Kathleen Kuhn, President and CEO of HouseMaster. “While it’s true that lower prices draw more buyers to foreclosed properties, they still have to take into consideration things like abuse, neglect, or deferred maintenance. Unassuming buyers think it’s automatically a good deal when the price is right – but foreclosures aren’t necessarily a great buy if the property has lots of defects.”

Without information on the condition of the house, these buyers are prone to making potentially poor investment decisions. That’s why Kunn suggests a solution: professional home inspections.

“If buyers want to make educated real estate decisions,” she notes, “then they must first determine whether there are conditions within the foreclosed property that could, in the long-term, affect and decrease its value. Home inspections are one way of doing that.”

Things that buyers should be on the lookout for include: moisture-related problems; defective gaskets, valves, and hoses; leaks; vandalism; insect and rodent infestations; and damaged waste and sewer lines.

Kuhn also noted that the three kinds of foreclosure properties can lure typical buyers into making hasty investments – without having inspected the property for the above-mentioned defects.

Short Sales – Pre-foreclosure sales fall into this category, which essentially describes the cases when a homeowner who is facing foreclosure decides to sell at a low price the as-of-yet un-foreclosed property. Short sales are supposed to benefit all parties – the seller avoids foreclosure, the qualified buyer obtains a reduced price, and the banks avoid the foreclosure process and cost – but home inspections are still a must before final decisions are made. It’s ideal for buyers to call professional home inspectors before making the offer and before closing the offer – as this means that they will have checked the condition of the house twice during the whole sales process.
Real Estate Owned (REO) – This pertains to homes that have been foreclosed and are now owned by a bank. Because sellers/ homeowners have been taken out of the equation in the buying and selling of REO properties, it’s normally the lender who deals directly with prospective buyers. Of course, while REO properties are usually sold without any repairs being made, it doesn’t mean that buyers cannot negotiate a better deal with the banks. A professional report by qualified home inspectors can be presented to document in detail the defects and condition of the foreclosed property, thus giving buyers leverage to adjust offers to the banks.
Auctions – This is one of the riskiest ways to buy foreclosed properties, not only because auctioneers sell the houses “as is” (without changes to the condition), but also because they usually provide only limited times for interested buyers to look at the house. Can home inspections be done? Perhaps, but in a lot of cases, Kuhn notes, the inspection happens without any of the utilities being turned on, or without any access to crucial areas like crawlspaces and attics.

Knowing what your options in each kind of foreclosed property will give you the information you need to get the best house at the best price. But you need not do it alone, says Kuhn.

“It’s a great and exciting time to buy a home, but if you’re considering a house in various stages of foreclosure, then it’s best to conduct the necessary home inspections first. It’s a great investment that will allow you to make even more great real estate invesments.”

For more information on home inspections, the home buying and selling process, and home maintenance, visit housemaster.com.

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