Buying a foreclosed home might seem like a great idea. You know you can get the home for a steal, so you jump on the opportunity. Unfortunately, there are a few downsides of buying a foreclosure that you should be aware of before you take the plunge.
Use the following advice to avoid the top mistakes made when buying a foreclosed home.
Trying to do it Yourself
Typically, when you buy a foreclosed home, you need a professional real estate agent representing you. Even if the particular sale you are interested in doesn’t require it, we recommend that you use one. The right real estate professional can help you understand the market and have a better understanding of the home’s condition even without seeing it. A real estate agent that understands foreclosures will know exactly what to look for and even how much to bid on the home.
If you try to do it yourself, you may make the mistake of bidding too much or bidding on a home that’s a lost cause. Real estate agents have the inside knowledge of the industry and often know things that passerby on the street just don’t know about a home or area. Plus, the real estate agent knows the foreclosure bidding process and how to be successful at it, something which you may not know how to do.
Skipping the Home Inspection
A home inspection isn’t required for any type of loan, but when you buy a foreclosed home, it’s highly recommended. The inspector will be able to see things that you didn’t when you passed through the home, if you were lucky enough to get a viewing. Remember, when you buy a foreclosure, it’s usually ‘as is.’ If you don’t use your opportunity to get the inspection and find out what’s really wrong with the home, you could be walking into a financial nightmare. The inspection will likely cost you up to $500, but it’s money well invested as it will help you in the long run.
Getting Caught up in a Bidding War
Remember, you are likely buying a foreclosure because you want to save money. If there is a lot of interest in the home, you could end up in a bidding war. Don’t let yourself get out of control. This is where the real estate agent really comes in handy. The agent can remind you of the fair market value of the home as well as your budget. Sticking within that budget and passing up on a home whose bids go above it is the best way to keep yourself from overspending.
Thinking Short Term
Chances are a foreclosed home has gone through its share of trauma. The area around the home is included in this too. Don’t assume that when you buy the home and get it back into shape that its value will bounce right back. It’s going to take some time. If you had short-term plans to buy the home, fix it, and sell it, you could be in for a financial disappointment.
If, on the other hand, you plan to buy the home, fix it up, and rent it out, you’ll have a better chance of making a profit on the transaction. If after a few years the area bounces back too, you can then sell the home for a profit. If you think you are going to do this in a short amount of time, though, you could be sorely disappointed.
Not Including the Cost of Repairs
Remember you buy a foreclosed home ‘as is.’ That means any and all repairs are your responsibility. There may be a few small exceptions if the inspector finds something really wrong with the home and the bank negotiates with you, but that’s highly unlikely.
The repairs the inspector tells you the home needs, you’ll need to finance. If you don’t include the cost of these repairs in your budget, you could end up in financial distress right off the bat. Make sure you know the depth of the issues with the home and approximately how much it might cost to fix them. With these numbers in mind, you can then make a solid financial decision. Ignoring these costs could leave you in financial destruction.
Ignoring the Legal Issues With the Home
A foreclosed home has a high likelihood of having legal issues as well. Oftentimes, the legal issues pertain to the taxes. If the taxes are unpaid, someone needs to bring them current before you can buy the home. You will want to know if that person is you. There could also be other debts tied to the property that stay with the property. If you buy the home, you take responsibility for the debts. Ignoring this fact could be financially destructive.
Buying a foreclosure can be a good financial move if you don’t make any of the above mistakes. Take your time and make sure you get the professional advice you need to ensure that it’s a good decision. Working too quickly or getting too involved in the transaction could leave you spending a lot more money than you anticipated.