Bank owned homes are still flooding our nation’s real estate market. For buyers who can handle risk, some are incredible deals. But if you’re gearing up to buy your first home, take a hard look at whether buying a foreclosed property is a good idea.
Although buying a bank owned property requires you to jump through a few extra hoops, if the price is right, the money you save will be well worth your time.
Here’s what to expect should you choose to purchase a bank owned property.
Bank owned homes are sold “as-is”
Banks are in the business of lending money, not maintaining homes. That means when a bank owns a home, it will not make any repairs to the property, regardless of any damage.
As a buyer, you still want to be sure to get an inspection, but you cannot expect to receive any money from the bank to make repairs or any repairs to be made for you. In some cases, you can use the inspection report as a way to negotiate a lower sales price, but only if there aren’t multiple offers willing to pay more for the property.
Make sure that you get the home inspection from a licensed inspector before closing on the property. One way to do this is to make the offer to purchase contingent on the home inspection. The home inspector will reveal to you items in need of repair, such as a leaky roof as well as items that are not up to safety code, like a water heater that’s not strapped up. Then, you can decide whether or not you are willing to purchase the property based on the new knowledge that the inspection report showed you.
Not every bank owned property needs repairs, but many do.
Bank owned homes can take a long time to close
Just as in a traditional sale, after you make an offer on a bank owned home, the bank may reject your offer if the price or terms do not meet the asset manager’s satisfaction. They may also counter your offer to purchase.
If you and the bank agree on a price, then you wait.
Though not always the case, it often takes longer to close the sale when buying a bank owned property than when buying a home in traditional sale.
When you buy a home from a family, the sellers are typically motivated to close in 30 to 45 days (they want to move, too, or they’ve already moved and don’t want to pay two mortgages!)
But asset managers at banks often have backlogs of work (especially today), so getting everything done may take longer. Although a delayed closing could hinder your moving plans, some bank owned homes move as quickly as traditional sales. Much depends on the local market and the size of the bank.
Just because it’s bank owned doesn’t mean it’s a deal
It’s not wise to assume that all bank-owned properties are listed below market value. When listing a property for sale, the bank’s goal is to recoup as much of their money back as possible. Some of their properties go on the market for more money than they’re worth, but they often drop the asking price after it’s been in the market for a while.
Get a comparative market analysis (CMA) from me before making the offer. If there are comparable properties in the same area with similar characteristics as the one you want to buy, selling for a significantly higher price, then you may have a good deal.
Next, be sure to take into account the cost of all the necessary repairs when buying a foreclosure. Some may be major, such as roof repair, while some are likely to be purely aesthetic like painting the walls or redoing the carpet.
If you’re experienced and can do the work yourself, think about the time it will take you and the cost of materials. If you’ve never done repairs on a home before, get a professional estimate, preferably a free one from a local contractor or a home improvement store.
Once you know what other homes in the area are selling for and you know about how much it will cost you to get the bank-owned property repaired, then you can determine the price you will offer.
Buying a foreclosed property can be a great deal—if you can handle some risk. Make sure you get your home inspected, and figure out how much other homes in the area are going. That way you don’t end up paying more than you should.