“Good Deal” is subjective.
What you may think qualifies as a good deal may not be anywhere close to my definition. Price may be your only qualifier while I say time is most important to me. I can’t tell you whether foresclosures, across the board, are good deals are not, I can only tell you about things to expect about the deal itself.
Foreclosures are not for the faint of heart.
Wait, whaaaat? You say, “But I’ve heard all the advertisements. Foreclosures are where I’ll make a ton of money. I can buy up all the cheap properties, flip them and make a fortune.” Sure. That can be done.
First of all, I haven’t seen a very low priced foreclosure on the market in Nashville in quite some time that didn’t need to leveled due to serious health and structural issues. So there’s that. Inventory… Nashville is one of the few cities in America that seemed to be insulated from our country’s recent economic recession. Of course, there have been foreclosures on the market, but we haven’t had foreclosures saturating our housing market in the epic proportions many other cities have experienced.
Secondly, if you have to make significant repairs on the property, you had better be completely certain you’ll see a high ROI when you sell. So high, that you offset repair expenses, Realtor commissions and any additional taxes you’ll incur by purchasing a non primary residence property. Do you know what you’re doing? Where will you live during renovations? Can you afford it? If you plan to live in the house for two years, that’s a different story.
Here’s the skinny:
- Buying a foreclosure as your primary residence can be a very emotional experience. There’s a lot of not knowing. You may submit an offer to the holding bank and not hear back with an acceptance or counter for a week or two weeks. If you counter back, you could wait another week or two weeks. There’s a lot of waiting in limbo trying to decide if you should continue looking at other properties or submit an offer to purchase another. Some banks respond more quickly than others. Banks operate by their own rules and timeframes. It doesn’t matter if we give them 24 hours to respond, they’ll get to us when they do. Unlike purchasing direct from a seller, a bank has no motivation to do anything. They have no pressure to move them along.
- Paperwork intensive If you thought getting pre-approved was overwhelming, prepare yourself for what’s coming. There is quite a bit more paperwork to be filled out.You are signing contracts, liability waivers, utilities papers, bank addenda, disclosure waivers in addition to your standard loan docs. There are very different processes and orders of business than that of a seller owned property.
- Closing timeframes are well beyond the standard 30-45 day period. It is not unheard of for this process to extend months. At the time of this writing, my broker is in the middle of a transaction that has reached the 5 month mark- there is still no pending closing date. The buyer is ready, has the money- even completed repairs out of pocket, but the bank can’t seem to get it together.
- Banks rarely take less than the list price. We can ask, but don’t expect it. There is very little room for price negotiation on a foreclosure.
- There are repair and warranty exclusions no one wants to talk about. Banks don’t do repairs and banks don’t give home warranties. Depending on your loan type (if you are financing) repairs will be required to be made BEFORE closing. You will have to pay for the repairs out of pocket with no guarantee you’ll actually close. If you don’t close, you will not be reimbursed that money. Mostly likely, you will also not receive a property disclosure. It it truly buyer beware. This is huge risk to you.
- You’ll have to connect utilities in your name in order to have an inspection. Even though we all know banks don’t make repairs, your lender will require an inspection be done (at your expense). You will have connection fees, minimal service fees, and disconnect fees. If you do end up closing, you will pay reconnect fees again.
- There are tax and appraisal implications no one talks about. If you buy this property, flip it real quick, you have disclosure requirements to your next buyer and certain tax requirements since you purchased and sold within a short timeframe and additional disclosures since this was not your primary residence. Your lender will require an appraisal be done in order to grant a loan (at your expense). If the property doesn’t appraise and you can’t close, you will not be reimbursed that money. If you’re planning to flip this house- depending on what type of loan your buyer is using, you may have to wait a certain time period before closing because your appraisal is on record and would supersede a current appraisal. I am not an attorney nor am I an accountant, therefore I encourage you to discuss your financial obligations and financial gains you’ll need to report by purchasing a foreclosure.
- There are ALWAYS surprises and unexpected to-dos.
- Depending on why the property was sold, the previous owner may have rights to the property no one talks about. This has more to do with courthouse/ forced tax sales. But is a consideration you need to be aware of.
This article is not intended to discourage you from considering a foreclosure only to inform you about what really happens. Nothing in life is free. If it seems too good to be true, it probably is. We’ve all heard this and yet, I get at least 5 calls a week from buyers looking for a steal. I hear, “foreclosures will be so easy because banks just want to unload the property.” I have yet to see a bank in a hurry to unload anything other than paperwork.
There are great houses out there that have, for various reasons, gone into foreclosure, but these houses are usually priced competitively with the others in their neighborhood.
Foreclosures are not for the faint of heart. Read this article for more information.
If you are a first time buyer, let’s talk about your purchase timeframe and what you realistically think you can emotionally handle. Are you ok with living in buying-limbo for a month, two months, three? What will your lender allow as far purchasing? Some lenders won’t allow foreclosure or as-is properties. Do you have money to do repairs- significant or not? Please put any ego aside and recognize your limitations.
If you’ve read this and you still want me to show you foreclosure properties, let’s go. If you decide to put in an offer, awesome! I’ll write it up for you, but if throughout the process you start to doubt your decision, please don’t ever say I didn’t warn you! Just remember, we’ll get through it!
Questions? Call me @ (615) 977-8444 or email whereyoulivetn@gmail.com