Learn Before You Leap into a Short Sale or Foreclosed Home
In this market we see so many foreclosed and short sale homes but should you jump in with both feet? Probably not without arming yourself with a little information and that’s exactly what I have. I read a great article from bankrate.com about common buyer mistakes in foreclosures and short sales but first let’s clarify a few things. Although often treated the same, there is a difference between a foreclosure and a short sale. I asked our mortgage expert and he said in a foreclosure the lender has gone through the legal process and owns the property because the property owner can’t make their mortgage payments. In a short sale a lender agrees to accept less than the full balance on the loan and release their lien on the property. The property owner may or may not have gone into default on their loan.
Regardless, if you’re at the other end of any deal with a foreclosure or short sale, avoid these common mistakes:
- Ignoring problems with the property: Owners of foreclosed home are not leaving by their choice so their departure can often get ugly. They’re mad and they take it out on their house. While short sellers are motivated to sell and repair their credit, chances are they haven’t done a lot of the essential maintenance on the home so be prepared! Foreclosures and short sales also often sit for a long time and get neglected so look hard at the house to determine how much work will be needed to bring it up to your standards.
- Skipping the home inspection: According to bankrate.com, you should really plan on tagging along on your home inspection so you can ask detailed questions about the repairs that need to be done. Although the owner may not have taken a sledge hammer to the place, there may be some major underlying problems. Make sure you get a detailed list of the repairs and do some research to estimate the cost to bring them up to code. Too many times, buyers underestimate how much this will cost.
- Rushing it: If you want to get a great deal on a short sale or foreclosure, you can’t be in a rush to buy something. These typically take longer than usual because they have to run through the lender, who is motivated to get the most of the house they’re left with. Lenders are also often not in the business of real estate sales so your house may not be on the top of their list. If this added time means you have to extend your rent or put your things in storage, then the great deal on the house might not be so great after a long period.
- Falling hard for a lemon: It’s so easy to walk into a house and fall in love that you don’t see the negatives. Don’t picture yourself baking cookies with a roaring fire while ignoring the mold beneath the walls or flooding basement. While there is a certain admiration for those that can look beyond problems and see the positives, be realistic in your offer to allow enough for repairs. Or, just walk away!