Hi all!
I wanted to take a few moments to talk about foreclosures. It's true you can get an awesome deal by purchasing a foreclosed home, but there may be some associated expenses that you need to prepare for.
After the market crashed, the real estate industry was suddenly flooded with foreclosures. This is not the case anymore, thankfully. Those that do pop up now and again can go through a multitude of avenues in order to get sold. Some these include auction sites such as hudhomestore.com and hubzu.com. They will be accompanied with a traditional MLS listing, but will contain directives to submit offers through an online bid site. There are a few things you should take into consideration before proceeding in purchasing a home listed this way.
Upfront Costs
More often than not, these homes will require a higher than normal earnest payment along with an additional fee. This fee can be labeled as web technology fee, buyers premium fee, or just about anything else the listing company comes up with. The earnest amount can be a set amount, normally $1000, or a percentage of the total sales price. One I recently sold carried a 3.5% earnest requirement. That means if you offer on a $150,000 home and your bid is accepted, you will be required to present $5250 in certified funds within 48 hours of the close of auction. You will also be required to submit your loan approval letter (or proof of funds, if you are paying with cash) at that time. In most cases, the earnest money and any fee is NON-REFUNDABLE. That means you should be ABSOLUTELY SURE that you intend to follow through with the purchase.
Home Inspection
One of the questions I hear most in regards to foreclosures is whether or not the buyer can still obtain a home inspection. The answer is not only yes, but it's highly encouraged. In a lot of cases, foreclosed homes have deferred maintenance stemming from the previous owner's financial hardship leading up to the foreclosure. It's absolutely VITAL that you have a home inspection performed to fully know what you're dealing with. That said, it's important to note that most foreclosures have all the utilities turned off and plumbing systems winterized. As the buyer, you may be financially responsible for having the utilities turned on prior to your inspection. In some cases, the listing company may be able to help - but be prepared for this to be an upfront out of pocket expense. As always, the home inspection is also an upfront cost.
Repairs
Most of the time, the institution that holds title to or is overseeing the sale of a foreclosed home will not be willing to make ANY repairs. Some lenders and lending programs may require certain repairs to be made before they will fund the loan and allow you to close. If that's the case, the expense for those repairs will be another upfront cost for you as the buyer. These repairs could be something as simple as having a handrail installed by a staircase to something as major as having a faulty foundation repaired or a roof replaced.
Closing Costs
In some markets, it's common for a buyer to ask the seller to pay all or part of the closing costs. This is certainly the case in Alabama. The institution overseeing the sale of the foreclosure may not be willing to provide any funds toward your closing costs. These funds must be paid at closing, normally with a certified check. They will vary tremendously based on your loan, closing attorney, property taxes, insurance, and any number of other fees. The dollar amount can range into the five-digit area, depending on the price of the home and the down payment your loan may require. You can always have a preliminary talk with your lending professional regarding closing costs. They can provide you with a pretty accurate estimate of your expected closing costs to better prepare you for what lies ahead.
You don't have to be afraid - just be prepared. It IS possible to get an excellent deal on a home by purchasing a foreclosure, but it may require a decent amount of upfront cash to get to the closing table. As long as you plan ahead and condition yourself to expect expenses, you can put yourself in a better mindset to see the transaction through. Your real estate professional, closing attorney, and lender can help you prepare for these costs so there are no surprises. All you have to do is ask!
Jeremy Reaves - The Realtor Guy!
Questions or Comments? Let me know below, or email me at jeremyr@era-king.com!
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