With the amount of foreclosed homes flooding the real estate market over the last year or so, you’d be hard- pressed to not have encountered one. For now we’ll skip how the whole foreclosure process works and get right to the point of when the property ends up listed for sale with a Realtor. When these properties are listed they are almost always listed drastically below market value.
Why do banks do this? It’s pretty simple: the bank is a bank, they don’t want to own property – they want to function as a bank and lend money, not own houses. They have a “turn- and- burn attitude”, where they price homes so aggressively that often times they end up with multiple offers on the houses. In turn, the bank gets rid of the property quickly and then they move onto the next one. The sooner the bank can clear its books, the better. That’s their attitude.
So how does the process work? How do you buy one of these rock bottom- priced properties? After looking through beat up properties and severally neglected foreclosures, you finally find the right one and you’re ready to make an offer on it! First of all, don’t wait. These properties simply do not last long on the market. It is very common for them to sell within the first few days or week of them being on the market. When multiple offers are received, the bank will come back to your Realtor and ask for your highest and best offer. Then the bank will usually pick whichever offer is the best.
As a buyer you need to be careful about what happens next. If your offer is accepted, the bank will send back a lengthy addendum that supersedes your original contract. Meaning, whatever is now in that addendum is what goes, so make sure you read through it very carefully. It would be smart to hire an attorney to review the documents for you as these addendums are written to protect the seller, not the buyer. This is the big catch 22 because you cannot go forward with the sale without accepting the terms of this addendum, and if you try to change or alter the addendum, they will not allow it. The bank will simply cancel the contract and move onto a new buyer.
The next thing you need to be careful of is the inspection period. Make sure you are protected with at least a 7 day period in which you can hire a home inspector to do an analysis of the home. Make sure they check for mold, Chinese Drywall, and anything that could be a costly repair. Whenever you buy a foreclosure from the bank, they are sold “as-is”; if there are issues with the home the bank will not fix them. So be darn sure you are aware of all the potential problems that could arise from your new home. If something major shows up and you don’t want to move forward with the purchase, you can usually cancel the contract and get your deposit back. Read all the documents very carefully. Once you get the keys all the problems are now yours to deal with!
Buying a foreclosed home can be a scary thing – don’t let it be. There are a lot of beautiful properties on the market in need of a new owner and you can usually get the best deals via the foreclosure route. Make sure you do your research, get the inspections done, and act quickly! This could be one of your greatest opportunities to own a slice of paradise in Southwest Florida!