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March 2009
"To Buy a Foreclosure or not to Buy a Foreclosure"
A guestion many homebuyers are asking today, "should I buy a foreclosure property as my next home?" The answer lies in balancing the pros and the cons. Here are a few tips:
1) Most foreclosures require at least some repairs. If you are not willing to do at least some cosmetic repair, that is, replacing carpet and applying new paint, a foreclosure property may not be the property for you. Most foreclosures require at minimum these simple, cosmetic repairs. Others require much more outlay and sweat equity, including major repairs such as replacing HVAC systems, new roof, water damage repair, chimney repair and/or mold remediation. These are just a few examples of what may need to be done. If you have the ability to put the sweat equity and can be prepared to spend the dollars necessary to make the foreclosure property to your liking, a foreclosure may be for you. Keep in mind that most banks will not do any repairs, taking the negotiating item out of the equation. A home inspection should still be completed to determine the amount of repairs that you will need to do and if you still want the home. Some banks require inspections prior to going under contract. This is to your advantage - you will then know in advance if you want to continue further with the offer. A property survey should also be completed to determine if there are any encroachments on the property.
2) There is a misconception that all foreclosures are great buys. Every foreclosure is different and should be treated that way. Your buyer's agent should complete comparables in the neighborhood. These comparable properties will contain properties that are in show condition. You can then determine the home values in the area compared to the asking price of the foreclosure property. Keep in mind that these comparables are based on homes that are in market and show condition.
3) Some foreclosure properties may also have code violations. Keep this in mind when looking for a foreclosure property. Your buyer's agent can help you determine if there are any. Some examples include bonus rooms, fences, decks, added by the last homeowner without proper building permits. In most areas of the country, permitting will need to be completed prior to closing of the property. The permitting process can add to your overall costs and create time issues with the closing.
If you are willing to do a little bit of work, a foreclosure property may be the answer for you.
Be sure to tune in to next month's article - "Tips for the Baby Boomer Buyer"
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