7 all to common
bank-owned home buyer mistakes to avoid at all costs.
Understanding some of the costliest mistakes to avoid goes a long
way in finding a great foreclosed bargain in today's market. Here are
seven common mistakes to be aware of:
Mistake 1. All
foreclosed homes are bargains.
Understand that the institution selling the property (lender, government
agency, etc.) wants to clear its inventory. The home's condition is not
their concern. Be prepared to do your homework -- and rely on a professional
real estate specialist (like us!) -- to avoid any land mines.
Mistake 2. Overbidding.
Foreclosed-home buyers must know area home values, condition of nearby
properties, neighborhood trends, street noise, airplane traffic, zoning
and other issues that affect the property's value. Sometimes bank-owned
REO properties are priced below market value to attract multiple bids
and drive up the sales price. We'll help you bid right.
Mistake 3. No inspection
Some buyers of foreclosed homes think a professional home inspection is
too expensive -- that's a costly mistake. Lenders and others who sell
a property "as is" may not be obligated to repair problems and
Only a licensed home
inspector can identify problems from electrical wiring or plumbing to
radon or pest infestation to serious structural or system problems. If
you don't have inspections conducted on a property prior to making a purchase
offer, you'll want to include an inspection contingency in your contract.
That contingency allows you to terminate the contract if inspections reveal
problems the seller won't fix and you don't want to handle yourself.
Also, be sure to do
a final walk-through inspection just before closing/settlement to ensure
the condition of the property has not changed for the worse and that any
agreed-upon improvements by the seller have been made to specifications.
Mistake 4. No clear
Most sellers of foreclosed properties will deliver a General Warranty
Deed for the property, which guarantees that the seller holds clear title
to the property and has the right to sell it to you. Be sure to add a
clear-title contingency to your contract with the seller, just to make
Having a professional
title search conducted before closing/settlement is critical to ensure
you won't be surprised by hidden ownership claims or liens. (A lien is
a legal claim against a home for such things as unpaid property or income
taxes, unpaid contractors or loans borrowed against the property. Liens
can stay intact until the money is paid, which means you may have to pay
off any outstanding liens as the new owner if the institutional seller
has not already done so.) Without a clear title, you may not be able to
get owner's title insurance to protect you against future unforeseen claims.
Mistake 5. Not
buying owner's title insurance.
Your lender will require you to purchase a title insurance policy to protect
the lender's investment against unexpected liens and claims. As the buyer,
you can also purchase an owner's title policy to protect your own investment
-- highly recommended when purchasing a property that has gone through
foreclosure. According to the American Land Title Association (ALTA),
a third of properties on which title investigations are conducted show
some problem with the title that must be corrected before the sale is
Although buying your
own policy could add hundreds (in some cases thousands) to your closing
costs, the one-time cost of the policy provides protection, for as long
as you own the property, against claims on the home that could arise after
you become the owner. Consider buying upgraded owner's insurance (an ALTA-R
policy) to protect against last-minute or unrecorded liens. You may be
able to save a few hundred dollars on your policy by shopping around for
the best price.
Mistake 5. Not
Be prepared to pay for closing costs and fees or any repairs and unforeseen
expenses, especially if you're buying an "as is" property with
FHA financing that may require buyer-paid repairs to pass FHA inspection.
A foreclosed home may not be a bargain if you can't afford to make it
Mistake 6. Not
To buy smart in the foreclosed-home market, you must do your research,
learn about other higher or lower bids (if possible), property taxes,
utility bills, liens, and so on. Take time for due diligence.
Mistake 7. Not
asking enough questions.
Ask for copies of all relevant permits, repair receipts, surveys and inspection
reports (if any). Inquire about past-due condominium assessments or homeowners
association dues that might create a lien. Be clear about any brokerage
commission to be paid and who pays it (seller or buyer). Then follow up
with calls, on-site visits and more research.
we have vast resources of information to help, and we'll guide your foreclosed-home
purchase to closing/settlement.