Reasons Foreclosures Aren't Always The Best Deal

I always have clients that come to me and say I want to buy a foreclosure.  I ask why? They proceed to tell me because they are good deals!  Home foreclosures occurred in healthy real estate markets in the past, but became far more prevalent after the housing market crashed in 2007. Foreclosed properties are bank-owned homes, also referred to as real estate owned (REO) properties. Banks can foreclose on a property after 90 days of mortgage nonpayment. Homeowners default for many reasons, including loss of their jobs, unrelated financial stress or intentional nonpayment to escape severely underwater mortgages.

Regardless of why homeowners default on their mortgages, banks repossess foreclosed homes and resell properties to recuperate their losses. 

I always have clients that come to me and say I want to buy a foreclosure.  I ask why? They proceed to tell me because they are good deals! 

Read below maybe this will change your mind on why a foreclosure isn't always the 'best deal"

1. Competitive Sales

Everybody always thinks that a banks aim is to offload REO-related property taxes and liabilities as soon as possible. They  think they price properties to sell.  Do you know I just received a price on a home from a bank this week $50,000 over the last comp!  This home is not competitively priced what so ever.  Most banks are now pricing their homes competive with or above current comps.  Banks seek all-cash offers or offers from pre-approved buyers with trustworthy credit and sizable down payments. Most first-time buyers cannot compete with investors who swiftly identify quality REO homes, move quickly making enticing offers and close without financing procedures.

Additionally, if experienced real estate professionals don’t make offers on an REO property, first-time buyers are wise to avoid it, too. Investors often look for homes to flip, and even buyers shopping for fixer-uppers should carefully heed the warning of disinterested experts.

2. As-Is Condition

When you visit an REO property, they don’t have the luxury of visualizing their lifestyles in nicely-staged environments. Foreclosed homes often sit vacant on the market for a period of time before they’re even put on the market. Buyers must stay open minded to see the potential in each property. Consider too that vacant properties sometimes don’t have electricity to power lights for walk-throughs.

Further, buyers of foreclosed homes do not receive property disclosures. Since banks are unfamiliar with the history of properties, buyers accept the risk of purchasing homes with unforeseen damages. It’s unlikely that previous homeowners who couldn’t afford their mortgages were prioritizing property maintenance, leaving repairs for future owners. Buyers should hire thorough home inspectors to survey properties before making offers.

Unlike other for-sale listings, buyers cannot negotiate with sellers (banks) to make upgrades to properties before closing. Banks intentionally price properties low accounting for buyer upgrades. Buyers of foreclosures must prepare to purchase homes in as-is condition.

3. Long-Term Vacancy and Vandalism

In addition to the aforementioned vacancy concerns, some REO properties remain vacant for extended periods of time. Pipes freeze in the winter when homes aren’t heated, bursting and causing costly water damages. Rodents and even homeless transients take refuge in abandoned properties. Before making offers, buyers need to evaluate the health concerns and total costs of repairs to create livable conditions in REO homes.

Banks sometimes permit short sales when borrowers are underwater on their mortgages. Short sales occur when banks accept the resale of a property for lesser value than borrowers currently owe. Short sales are sometimes more cost-effective for banks than allowing 90 days of nonpayment followed by property marketing resale. In many cases, banks do not permit short sales resulting in disgruntled homeowners.

Upset, angry or financially stressed homeowners facing foreclosure often strip properties of removable, valuable features and even intentionally vandalize properties as retaliation. Buyers should account for the costs of replacing appliances and fixtures including dishwashers, sinks, toilets and light fixtures. A foreclosure property may not be worth the inexpensive price tag if countless big-ticket items are missing.

In all, buyers have numerous factors to consider when shopping for homes; one of the major influencers is price. REO properties may meet that objective at first glance, but the challenges of competing for a quality home, the risk of unforeseen damages, the health concerns of unkempt properties and potential costs of stripped appliances may dilute the bargain.

How To Keep Your House Cool This Summer WITHOUT Running the Air!

Knowing what appeals to today’s homebuyers, and considering those trends when you remodel, can pay off years from now when you sell your home.

Two new surveys about what homebuyers want have me feeling pretty smug about my own home choices. Maybe you'll feel the same.

Privacy from neighbors remains at the top of the most-wanted list (important to 86% of buyers), according to the NATIONAL ASSOCIATION OF REALTORS’® "2013 Community Preference Survey." Privacy is no doubt the best feature of my mid-century ranch home, since I can only see one neighbor’s house and it’s a couple hundred feet down my driveway.

It may not be practical to move your neighbors farther away (although I’m sure many people wish they had that superpower), but you can increase your home’s privacy (and therefore its resale value) by planting a living privacy screen of trees and shrubs or by physically screening off your patio.

3 More Takeaways for the Next Time You Remodel

1. More and more generations are living together. Another NAR survey, the "2013 Profile of Home Buyers and Sellers," found 14% of buyers purchased a home suited to a multigenerational household due to children over the age of 18 moving back into the house, cost savings, and the health and caretaking of aging parents.

I did that back when my parents were still alive, and it worked out great for everyone. I didn’t have time to let my infant daughter nap on my shoulder all afternoon, but my mom did. She couldn’t drive to church meetings at night, but I could take her. And neither of us liked cleaning the gutters, but my husband didn’t mind that chore.

Even if you’d rather live in a cardboard box than with your mother, you might want to consider the multigenerational living trend when you’re remodeling. For instance, opting for a full bath when finishing the basement could offer more convenience for you now and boost your home’s resale value by making it more appealing to a multigenerational family.

2.  On average, homeowners live in their home for nine years. That’s up from six years in 2007. Since you’ll be in your home for a long time, it makes sense to remodel to suit your taste but also with long-lasting marketability in mind. After all, you don’t want to have to redo stuff. For instance, you can go for trend-defying kitchen features, like white overtones and Shaker-style cabinets, which work with a variety of styles.

I feel compelled to caution against going so far out of the norm for your neighborhood that it’ll turn off potential buyers even nine years from now. (It never hurts to get your REALTOR®’s opinion on your remodeling plans.)

3.  Homebuyers love energy efficiency. Heating and cooling costs were "somewhat" or "very important" to a whopping 85% of buyers. If your home could use an energy-efficiency upgrade, go with projects that have a solid return on investment, like sealing your air leaks and adding attic insulation. You’ll save money on your utility bills now and when you’re ready to sell, your home will appeal to buyers looking for efficiency.

By the way, to take back your energy bills, you need to do at least four things. One to two fixes won’t cut it, thanks to rising energy costs.

About two-thirds of survey respondents also thought energy-efficient appliances and energy-efficient lighting were important. Tuck away your manuals and energy-efficiency information when you buy new appliances and lighting. When you’re ready to sell (in nine years) you can pull those out and display them where buyers will see them.