5 Factors to Consider When Buying a Foreclosure
If you're thinking of buying a foreclosure, be prepared for a process that is wildly different than purchasing a standard home on the market. Foreclosed properties, which are bank owned, can be great for buyers who are looking for a good deal and don't mind dealing with a long-term renovation. Sometimes foreclosures are stripped bare, have been abandoned for months, which means they'll need a heavy dose of maintenance that can turn a bargain deal into a money pit.
With a little bit of research and patience, you can find a hidden gem that won't cost you an arm and a leg. Check out these five factors to consider when buying a foreclosed home:
1.Get a Home Inspection
The most important part about buying a foreclosed home is to invest in a good home inspection, which typically costs between $300 and $500. A licensed home inspector will check the entire property to provide you with a detailed report on the structure and mechanical parts of the home, giving you a better idea on what you are buying and the types of repairs that are needed. A home inspection can also let you know if the home has too much damage to make it a worthwhile investment.
Also note that, unlike a standard home on the market, a vast majority of foreclosures are sold "As Is", meaning that no matter what the inspection uncovers, the bank is under no obligation to perform any updates to the home.
2. Check the Plumbing
Usually foreclosed properties have been neglected for so long that problems with the plumbing go unnoticed. Leaks and broken plumbing can lead to catastrophic problems that will result in bigger and more expensive repairs. It can ruin floors and walls with rot or mold. Plumbing problems can cost anywhere from $100 to more than $30,000, depending on the damage. This is why a good home inspection is needed because you may not see these problematic areas right away.
3. Obtain information about the property's history
You should be aware that when you purchase a foreclosure from a bank, you may lose the home's history and alterations that took place along with it. If you were buying a home the traditional way from a seller, then you would get a complete Seller's Property Disclosure Statement (SPDS) as part of the transaction.
The SPDS would include information about the home's material defects and any maintenance, repairs, and additions performed under the previous owner. But because you're buying a foreclosed property, the SPDS gets excluded due to the third-party seller being the bank, who, we will remember, never lived in the home so can claim that they aren't aware of any alterations that took place.
4. Examine the Exterior for Damage
Take a walk around the exterior of the foreclosed home or walk with the inspector to take note of any foundation cracks, old roofs, water damage, leaks, or other structural issues. These are considered big repair items that can add up quickly if not taken care of properly. If the foreclosed property has a pool in the backyard, then a regular home inspection won't be enough to check for any damage. You'll need to hire a pool service that can get the system running to check for equipment damage as well.
5. Inspect Mechanical, Electrical, and Water-Heating Systems
Since you're buying the home "As Is", you are responsible for the home once you purchase it and there is no negotiation with the bank to get repairs done on the property before you buy it. That's why it's also important to ensure all of the water, heating, electrical, and mechanical systems are working and up to code. Because these homes have been abandoned for a long period of time, dust, dirt, garbage, and even rodents or small animals can get stuck in the ventilation duct. Severe weather, temperature, and humidity can damage boilers and furnaces causing corrosion of the heat exchangers, a replacement that can cost you as much as $5,000.