Foreclosures, the hottest new trend in real estate. Everyone envisions purchasing a foreclosure for pennies on the dollar. Instantly gaining thousands of dollars in equity.
On paper it sounds like the perfect way to purchase your next home.
But there’s a problem. It can become quite expensive… Here’s how:
In a normal real estate transaction every seller fills out a Property Disclosure form. This is a bunch of questions asking the homeowner if they are aware of any major problems with their home. Water leaks, electrical issues etc. It behooves the homeowner to be honest in answering these questions because if it becomes apparent that they lied there can be repercussions for the homeowner.
Obviously with a foreclosure that homeowner does not own the home anymore, the bank does. And because the bank has not lived in the home they do not complete a Property Disclosure form.
That’s a hassle but not a deal breaker. It just means you have no background information as you begin your due diligence…
Next, as a Realtor I’m not allowed to do many things. One of which is to give legal advice. Another of which is to give advice on the status of the mechanicals of the home. The plumbing, electrical etc. I’m not a professional electrician or plumber. Nor did I sleep at a Holiday Inn last night… My role is to handle the negotiations and contracts. The closing and legal transfer of title is then handled through your lender and a lawyer.
Lets back up for one second. In a normal situation the homeowner will do everything in their power to make sure the home is in the best possible condition to sell. In a foreclosure, the homeowner is beyond upset about losing their home and in many cases will damage and leave the home in worse condition than when they lived there. Often times the damage will go unnoticed by you and your real estate agent.
This leads you to hire a property inspector to thoroughly inspect the property from top to bottom looking for issues and things that need to be repaired.
So, the property inspector does their thing and finds a problem(s). One major issue is the electrical is not up to code. You get an estimate and find out that it will cost you upwards of $1000. And this is on top of you having to paint because many walls have scuff marks because the previous homeowners moved as fast as they could with no regard to damaging the home. Plus there’s a hole in the wall that needs to be fixed. You get the idea.
All of this adds up. Property Inspection + Electrical Upgrade + Other Fixes = More money than you’re comfortable paying out.
So you decide to pass on this home, but you’re now out the money you spent to have the property inspection and you’re no closer to finding your next home.
And that is how purchasing a foreclosure can become expensive.
PHONE: (608) 542-0178
My name is Adam Holberg and I’m a Realtor with First Weber of Wisconsin Rapids. This website is designed to inform and help bring conversation to a topic I love, real estate.