One thing that some people don’t know about me is that I actually worked for the REO Division at JPMorgan Chase. ‘REO’ means ‘real estate owned’; we dealt with the bank-owned foreclosed properties. Since then, I’ve been able to help a number of clients successfully purchase foreclosed homes.
Sometimes, however, foreclosed homes are more than people bargain for.
Every foreclosed home is sold in as-is condition, meaning that no repairs will be done. This is why it’s very important to have a thorough and effective property inspector go through all the major systems, including the plumbing, electric, water, and HVAC systems. These are all things that could end up costing a lot of money to repair if they’re not in good shape. Additionally, don’t forget that California is termite country, so be sure to have pest control come through to look for signs of potential infestations.
When a home is foreclosed upon, sometimes there are unpaid contractor liens, homeowner association dues, and tax liens on the property. These are all things that will come up on the title report, so it’s a good idea to review that to be sure there aren’t any nasty surprises.
It should come as no surprise that when a home is foreclosed, the seller may not have left on the best of terms. Sometimes, fixtures have been removed or there are other damages on the property. I once purchased a foreclosed property myself; all the toilets removed, door handles were missing, windows were broken, and there were holes in the walls. It’s wise to go into a foreclosure home purchase understanding that these types of things are typical.
Because these homes have often been vacant for a long time, it’s also smart to get a home warranty. That will protect you for all the major systems in the home, and it offsets some of the costs you might be incurring when you buy one of these properties.
In the previous downturn of the market, foreclosed homes were plentiful and often ignored. However, in our current market, there are investors that are specifically looking for these types of properties. This can lead to frenzied bidding wars that raise the price up to market value. Be sure to review all other relevant sales in the area that are comparable in neighborhood and in the content of the property.
The bottom line is that there’s definitely an opportunity to get a value when purchasing foreclosed homes if you’re educated and have someone on your side who knows the ins and outs of what to expect. I purchased a home at $45,000 below market value, after which, I invested about $30,000 in upgrades. Recently, we closed on a home that was worth $800,000 for the neighborhood, but we got it for $750,000.
If you do your homework and then create and execute a smart plan for pursuing a foreclosed home, you can definitely be successful.
If you have any questions about foreclosed properties, you are encouraged to reach out to me. I’d be happy to help you.