5 Reasons Why You May Not Want to Buy A Foreclosure
In my area, we are finally seeing a small decrease in the number of foreclosure (REO) properties sold. Given the state of the economy and the ever-present and ever-threatening “shadow inventory,” I’m not sure that the number of foreclosures sold is headed downward permanently. However, I do see another interesting trend — buyers snubbing REOs! After so many years where buyers felt they had to literally lay down in the middle of the road for the privilege of buying a bank owned property, I am now seeing buyers simply walk away from the foreclosure purchase process, and I must admit it is refreshing to observe.
Here are 5 reasons why you may not want to buy a foreclosure:
1) Mandatory bank pre-qualification. You see this a lot with the big banks: Bank of America, Wells Fargo, and Chase, in particular. For the honor of bidding on their maintenance -deferred, non-performing asset, buyers are expected to fork over all their financial information, take a hit to their credit with an unnecessary inquiry, and hold a straight face while a salaried employee of the bank explains why despite the bank’s reportedly poor loan processing timelines, they should switch lenders based on a free appraisal and a flashlight pen.
2) An unfair bidding process. Banks are well known for dragging out the bidding process to their own advantage. After a few spins on the merry go round of “highest and best” many buyers now just want to exit the ride. Their heads spinning, they don’t quite know if they are the only buyer left and if they are now effectively bidding blindly against themselves. After all, the bank is often “countering” offers submitted weeks ago that are often expired anyway.
3) That skewed bank addendum. OK they have finally selected you as the lucky buyer. Now before the bank will sign any contract, they want you to sign and agree to all of their heinous terms. Some examples I’ve seen? They can cancel the deal at any time for any reason. They will not turn on any utilities for inspections. Initial here where it says you’ve had an attorney review this addendum for you, and by the way, you have an hour and half to return the addendum or we will cancel the deal. The buyer must cut the grass every third Wednesday of the escrow period. OK I made that one up — but nothing would surprise me as the banks are always revising and reworking these atrotciously skewed addenda to their advantage.
4) Limited disclosures.L As enticing as it may sound to buy a property and receive no actual information about its defects from the seller, some buyers now balk at the thought. The law exempts REO sellers from certain disclosures in California, and they often take that fact and run with it — right over a cliff. However, even though banks go to the trouble of reminding you about a bizzilion times that the sale is “as-is,” they sometimes do not understand that “as-is” does not allow a bank to fail to disclose what they actually know.
5) It may not be such a good deal after all. Yes, deferred maintenance and a seller who wants to do absolutely no repairs aren’t so appealing after all. The bank may have picked just the right shade of lipstick for that pig, but I find that buyers are no longer impressed by a coat of flat paint and layer of cheap carpet. As the market decreased rapidly, foreclosures were setting “market value” as they were often the only homes selling. Now that the market has settled a bit, I find that buyers are only interested in REO priced below others comps due to the (now well known) fact that they often hold costly surprises for their new owners.
Tni LeBlanc is a Real Estate Broker, Attorney, Short Sale Agent and Certified Distressed Property Expert (CDPE) serving the Santa Maria, Orcutt and Five Cities area of the Central Coast of California. If you are ready for the challenge of today’s real estate market and interested in a list of available foreclosures in the Central Coast area, contact her office at (805) 938-9950.
Copyright© 2011 Tni LeBlanc *5 Reasons Why You May Not Want to Buy A Foreclosure*